Wednesday, 05 March 2014

Assessing Kazakhstan's Revised National Development Strategy

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By Richard Weitz (the 03/05/2014 of the CACI Analyst)

In his annual State of the Nation address on January 17, President Nursultan Nazarbayev reaffirmed the vision of stable economic development found in the Kazakhstan-2050 national development strategy, while adding important details and refinements. He and the Foreign Ministry have since clarified the international dimensions of the strategy. Nazarbayev and other experts acknowledge the economic and other challenges in transforming Kazakhstan into one of the world’s 30 most developed countries, but can point to Kazakhstan’s exceptional past performance as an indicator of its future potential.

BACKGROUND: The Kazakhstan-2050 Strategy, first introduced in 2012, establishes several long-term goals: create new sources of economic growth; strengthen small and medium-sized entrepreneurship; entice high levels of foreign investment; diversifying exports beyond oil and gas; develop innovative public-private partnerships; expand Kazakhstan’s transportation, communications, information, and other critical infrastructure; and promote technological innovation and cutting-edge industries.

In his speech, Nazarbayev offered a clearer timetable than previously regarding how Kazakhstan could attain these objectives. He provided short-term and intermediate-range targets as well as longer-term goals. One reason for the short-term objectives was to provide Kazakhstani policy makers with regular milestones for their indicative planning, allowing them to assess progress on a regular basis. In addition, Nazarbayev presumably wanted to offer constant, clear, and continuous benefits to sustain support for executing a strategy whose end goals will take decades to achieve.

Furthermore, Nazarbayev for the first time broke down the longer-term goals of Kazakhstan-2050 into two development phases. During the first stage, which ends in 2030, Kazakhstan should exploit what Nazarbayev sees as a “window of opportunity” from rising global demand for Kazakhstan’s energy products to construct a strong manufacturing sector and follow the successful modernization paths of Singapore, South Korea, and the other already successfully industrializing states. After 2030, he wants Kazakhstan to strive for “sustainable development” by creating new industries, particularly in niche markets; transitioning to a knowledge-based and green economy; and making Kazakhstan a transportation and trade hub between Europe and Asia. Nazarbayev advocated using targeted five-year national economic plans to develop priority sectors throughout this process. Whereas the first five-year plan has focused on expanding transportation industries, he suggests future five-year plans aim to develop mobile, multimedia nano, space, robotic, biotech, and future energy technologies.

On January 29, the president approved the new Foreign Policy Concept of the Republic of Kazakhstan for 2014-2020. According to Foreign Minister Erlan Idrissov, the main goal of the Concept, which calls for continued adherence to a multivector foreign policy and supports regional integration and conflict resolution, is to create a favorable environment for executing the Kazakhstan-2050 strategy. During his February 5 annual meeting with the senior foreign diplomats accredited to Kazakhstan, Nazarbayev prioritized foreign economic cooperation in support of the Kazakshstan-2050 strategy, which sees foreign investment, technology transfer, and collaboration with international experts as providing critical contributions. He pledged to establish an even more favorable environment for foreign businesses to attract more inward investment, technology transfer to improve local innovation, and foreign skills that can promote local entrepreneurship.

IMPLICATIONS: Kazakhstan past record of socioeconomic achievement confirms its potential to realize these goals. The country has experienced rapid economic growth, declining poverty rates, and rising per capita income and education levels. At present, GDP growth, inflation, and unemployment all range from 4-6 percent, good figures for any country and certainly within the parameters defined by the strategy. Kazakhstan’s scores high on the Heritage Foundation’s economic freedom index, being well above the world and regional averages. Kazakhstan has also performed very well in rankings of the World Economic Forum Global Competitiveness Report. The country continues to attract more foreign investment than all the other Central Asian republics combined and its businesses are already prominent investors in many foreign countries even beyond Eurasia.

Nonetheless, in his January 17 speech, Nazarbayev acknowledged the challenges Kazakhstan faced in realizing its ambitious long-term development goals. The president said that, “There will be no ‘easy ride’ in the 21st century” given the vagaries of the world economy and the competitive potential of rival aspirants for the top 30 position. Indeed, a major challenge for achieving the newly revised strategy remains that it defines success in relative terms — Kazakhstan does not only have to achieve certain unilateral socioeconomic benchmarks such as growth and productivity rates, but must do better than other countries, which is not entirely in Astana’s control.

To win this competition, Kazakhstan must diversify its economy beyond resource exports to more sustainable economic sectors to surmount the “middle-income trap” that has ensnarled so many other developing states whose growth plateaus after they can no longer realize gains from adding low cost inputs to national production. Achieving further major increases in aggregate and per capita GDP will require decreasing dependence on natural resource exports. The Kazakhstan-2050 Strategy emphasizes the importance of defining new international markets where Kazakhstan can become a leading global competitor and thereby generate future sources of economic growth. Several initiatives within the Strategy-2050 framework therefore aim to promote national diversification through innovation, cluster projects, and niche development.

Improving the quality of Kazakhstan’s human resources through enhanced education and training will also be important. The country has benefited in the past from sending some of its best students and scholars abroad on government-supported fellowships. In the future, it will need to ensure that these foreign-trained workers impart their skills domestically and that Kazakhstan’s own national education system continues to improve. The multi-decades timeframe of the national strategy should help sustain this focus even after its authors retire from directing its implementation.

An international group of prominent independent experts recently published a book-length study, Kazakhstan 2050: Toward a Modern Society for All, that assesses Kazakhstan’s potential to achieve its development goals. They find that the government’s current policies are generally correct but require strong execution, monitoring, and evaluation to determine and expand those practices that work best. Implementing these reforms will require considerable time, persistence, and resources and must overcome the likely opposition of stakeholders with a vested interest in current practices. For example, to move beyond oil and gas and develop a knowledge-based economy, the government must attract foreign companies with an improved business environment; develop research universities and “knowledge hubs” in principal cities; invest in broadband connectivity to accord with the country’s huge size and low population density; and be selective in allocating government support.

The study sees promoting better public institutions and good governance as Kazakhstan’s most important priority and challenge in realizing the Kazakshtan-2050 goals. In their view, the government must reverse its recent trend toward greater state intervention in the national economy that, continue the transition to a civil service based solely on merit, intensify its drive against corruption; promote accountability, transparency, civil society and rule of law; and end the practice of prioritizing economic over political reform and instead develop both economic and political institutions in tandem. They recognize that this new approach must overcome severe implementation issues, manage strong special interests, rising public expectations, broader public participation, and more accountability; and better preserve short-term stability while pursuing the long-term benefits of having predictability in the public sector

CONCLUSION: It is important not to underestimate the importance of the foreign-policy dimension of the Kazakhstan-2050 strategy. Like its neighbors, Kazakhstan needs a benign regional and global environment to thrive. In particular, Kazakhstan cannot achieve its development goals unless it joins the World Trade Organization, does not face an escalating war in Afghanistan, makes further progress in promoting regional integration, completes its east-west transcontinental transportation networks, and is a member of an open rather than closed Eurasian Union. All these goals are in the revised strategy, but Kazakhstan can best achieve them if it receives support from regional and global partners that can often exert greater influence on these issues than Astana.

AUTHOR’S BIO: Dr. Richard Weitz is a Senior Fellow and Director of the Center for Political-Military Analysis at the Hudson Institute.

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