Driving resilience and economic growth in New Kazakhstan

NUR-SULTAN. KAZINFORM – As Kazakhstan stepped into the new stage of its development under the New Kazakhstan agenda, sweeping large-scale reforms are on their way. More about how Kazakhstan sees its development moving forward is in the latest article of Kazinform.

According to Adviser to the President of Kazakhstan, Deputy Chair of the Supreme Council for Reforms, and former EBRD (European Bank for Reconstruction and Development) President Sir Suma Chakrabarti, one of the biggest things happening in Kazakhstan over the past months is the trajectory of political reforms.

«Investors like stability and Kazakhstan for many years was known for its stability. Then January came and the events in January. It was clearly the time when people were crying out for a new political framework, a new way of creating stability in the country and the President responded extremely well,» said Chakrabarti.

During the years of independence, according to government data, Kazakhstan has attracted $390 billion in direct foreign investment, most of it in the last 10 years. The strategic location between Europe and Asia, political stability and predictability as well as investment climate were among the factors that drove investments up over the years.

In 2021 the total investment inflow was $24 billion, which is 38 percent higher than the year before. At the same time, oil and gas investments accounted for only 28 percent, compared to 50 percent in 2018-2019, as the country tries to move away from its dependence on fossil fuels.

In 2021, the main investors in Kazakhstan were the Netherlands, the United States, Switzerland, Russia, China, Belgium, the United Kingdom, South Korea, Türkiye and France.

All the key sectors showed growth, including mining – 18.3 percent, manufacturing – 65.4 percent, trade – 46.7 percent, finance and insurance – 57.2 percent and construction – 37.8 percent.

Chakrabarti commended Kazakhstan’s efforts to introduce environmental, social, and corporate governance (ESG) standards, an approach to evaluating the extent to which a corporation works on behalf of social goals that go beyond the role of a corporation to maximize profits on behalf of the corporation’s shareholders.

The current regional and global economic outlook is tough, he said, and this needs to be recognized. The Global Economic Prospects report published by the World Bank in June says the compounded damage from the COVID-19 pandemic, and the ongoing situation in Ukraine prolonged the slowdown in the global economy, what could become a «protracted period of feeble growth and elevated inflation.» Global growth is expected to contract from 5.7 percent in 2021 to 2.9 percent in 2022, while growth in Europe and Central Asia is expected to shrink by around 3 percent in 2022.

«The conflict and the significant sanctions imposed on Russia are of course a very serious drag on Kazakhstan’s economic prospects. The Russian economy is contracting and likely to continue contracting throughout this year and into next year,» said Chakrabarti.

He cited the IMF forecast for Kazakhstan, saying that Kazakhstan’s GDP growth will decrease to 2.3 percent in 2022, instead of last autumn’s forecast of 3.8 percent.

Challenge, however, can be an opportunity, he said, encouraging Kazakhstan to diversify trade with other countries, and diversify transport routes, including oil supply routes.

New investment policy until 2026

Under the new investment policy until 2026 approved by the government on June 23, Kazakhstan seeks to bring the level of investment in fixed capital up to 25.1 percent of GDP and increase the inflow of foreign direct investment up to $25.5 billion in 2026. The document has a set of measures to revise the policy of investment attraction considering new trends, allowing to change the structure of investment towards the competitive production of goods with high added value.

«The main vision of investment development is a balanced approach to investment attraction, considering the contribution of each industry to economic development. The key driver of competitiveness will be the manufacturing industry,» said the First Vice Minister of National Economy Timur Zhaksylykov at the government meeting in June.

The focus will be on the growth of labor productivity, increase in the volume and complexity of exports, the development of new productions of higher redistribution and gradual localization of production.

Forming a transparent and predictable investment policy, promoting the growth of investment activity in the private sector and unlocking the investment potential of the economy through simplification of bankruptcy procedures are among the major three objectives.

According to Kazakh Prime Minister Alikhan Smailov, Kazakhstan is attractive for foreign direct investments and retains a leading position in terms of the inflow of foreign investments in the Central Asian region.

«To strengthen this position in the current environment, we need to be proactive in the bid for foreign investments and create the most optimal conditions for investors. We should expand sources of financing for investment projects in non-resource sectors of the economy,» said Smailov.

Speaking at a panel session on investments at the Astana Finance Days, Smailov said Kazakhstan, with its strong political and economic base, is a gateway to the largest world markets of more than 1 billion potential consumers, including the Eurasian Economic Union and China.

Significant natural reserves make Kazakhstan an important supplier to the world commodity markets. Kazakhstan ranks sixth in the world in terms of agricultural land area.

He spoke about the preferences offered to investors. Kazakhstan has 13 special economic zones and 36 industrial zones with preferential investment regimes. The Astana International Financial Centre serves as a point of attraction for investors from all over the world.

«The government invites foreign investors to enter into contracts and new projects. We can guarantee that the interests of investors will be considered to the maximum extent possible,» said Smailov.

Kazakhstan’s economic growth reaches 4.6 percent in five months of 2022

According to Kazakh Minister of National Economy Alibek Kuantyrov, who delivered his report at the government meeting on June 14, the growth rate of Kazakhstan’s economy reached 4.6 percent in the five months of 2022. There were steady dynamics in the real sector, growth in the services sector and a big increase in the volume of exports.

Growth in the real sector made 4.8 percent, while business activity in the service sector increased to 3.9 percent. The growth rate of investment in fixed assets was 2.5 percent.

Emphasizing the volatility in the global markets, Chair of the National Bank of Kazakhstan Galymzhan Pirmatov said in May 2022, inflation in annual terms accelerated to 14 percent from 13.2 percent in April this year. According to the forecasts of the National Bank, in 2023 inflation will gradually slow to 7.5-9.5 percent, considering the measures taken in the monetary policy, the gradual reduction of external pressure on inflation and the planned implementation of the countercyclical fiscal rule.

Kazakhstan’s long-term development prospects

Dr Indermit Gill, Vice President for Equitable Growth, Finance and Institutions at the World Bank, spoke about the country’s long-term development prospects, which are more difficult than addressing short-term problems. The report that Dr Gill mentioned is an economic memorandum that outlined analysis and recommendations on how Kazakhstan should devise its economic development. It noted the importance of addressing underlying structural drivers and institutional changes.

While Kazakhstan’s stated goal is to become one of the world’s top 30 economies by 2050, some factors inhibit the progress – dependence on resources, distant location and dispersed population.

«There is a tight three-way relationship between a country’s per capita income, the sectoral composition of its output, and the share of urban settlements in its population. The team finds that per capita income has grown mostly during the time when the prices of Kazakhstan’s exports happen to be high,» said Gill.

He said that the production structure has not changed much as well as the urbanization level remained unchanged for more than a decade.

The structural transformation can be driven by strengthening factor markets, notably for labor and capital, reducing the share of state-owned enterprises, increasing bank lending to medium-size companies, and fostering fair competition.

Overall, the country’s ability to improve standards of living and raise economic growth will depend on its ability to increase productivity, mobility and connectivity, according to the expert.

Written by Assel Satubaldina

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