Diversification Drive Requires Concerted Long-Term Approach to Succeed, Expert Says

The Astana Times’ Yelden Sarybai sat down with Prasad Bhamre, Deputy General Director of Samruk Kazyna Invest, to talk about his views on Kazakhstan’s economic development, diversification efforts, agriculture, as well as a few secrets for getting to know this country better.

Could you tell us a bit about your background?

I’ve been to Kazakhstan for almost eight and a half years. Before that I was living and working in the USA, Boston specifically. I am an engineer who was born and brought up for the most part in India, then I went on to do my further education in Canada and the United States. My most recent brush, if you will, with Kazakhstan was at Harvard University, where my classmates were from Kazakhstan. And I worked together with a professor of ours Michael Porter on diversification of Kazakhstan’s economy. That was essentially the work we did for our masters in economics programme, and soon enough that became the template for the diversification of the country. These two people I’m talking about are now ministers here in Kazakhstan and they were instrumental in bringing me here, for inviting me to come to meet the Prime Minister at the time.

Ever since then I’ve been involved in various government organizations starting with the ministry of economy. I was involved in the creation of Kazyna, before it became Samruk Kazyna. I was in fact, a deputy chairman of Kazyna at one point. My background is that of an engineer who’s worked in the oil sector in Canada and the US, who’s worked in consulting in the United States and then gone to get a degree in economics because that is what was my interest. After that I have essentially applied those analytical skills from engineering and economics in this country in various positions. So I would consider myself to be quite very well aware of the various economic sectors in this country especially the non-oil sectors, which would be my specialty.

For eight and a half years, you’ve been living in Almaty and Astana. Do you like it?

I really enjoy it. When I first came to Kazakhstan people were asking me where is Kazakhstan, especially in the West, and, for that matter, in the East, people did not know much about Kazakhstan then. That perception is changing now. But in answer to your question, yes, it was initially a pleasant surprise, I must say. For two reasons, one is the infrastructure developments were quite high, especially in Almaty where I first landed. And, number two, I found the people were very receptive, not to me as an individual, but to the ideas that I brought to the table. And the reason that I’m here until now is because they’ve continued to be receptive, especially in the policy making side of things. So that will be my take on things. I like it, I like working here.

So let me ask a professional question then: how do you see the diversification in Kazakhstan?

In economics, there is a term called the “natural resource curse”. There’s the “Dutch disease,” and all of those things of which we are aware of and what they entail. There are PhD theses and lots of papers written on this topic, about how difficult it is for countries to extract themselves out of this “Dutch disease,” how to move away from this “curse.” The challenge still remains for Kazakhstan if you look at the long-term, which is where we want to be, as a diversified economy. What is the long-term but a series of short-terms? And short terms are defined by political cycles. So if I’m a minister, I’ll be around for two years, I want to make an impact straight away. I’m not going to make an impact which is going to be felt eight years down the line because I might not be around. This is not necessarily a criticism but essentially a function of how the “resource curse” works. Whereas if you look at a country like Singapore, which has nothing, they can’t afford to think short term. They have to think about the long-term because they have to make lasting impacts. Whereas we can make short-term impacts. We can say “ok, we don’t have a bridge there, let’s build it.” Or we want to build a new structure in the middle steppe, “let’s build it. We have the spending power.” It may not be the most efficient investment, and that’s essentially what the “natural resource curse” is.

I’m not saying that everything being built here are “white elephants”, but there is a tendency, a proclivity among managers as well as decision makers to do those kinds of things. So to answer your question about diversification, I think we are getting there, but we are a long way away. Because diversification does not only mean non-oil related manufacturing, it also needs a lot of soft infrastructure, which means policies, ease of doing business, and building the human resources. Again, if I’m a young guy, I’m not going to go and get an IT education, because what job am I going to get? I can be a lawyer or an economist and get a really nice paying job in Astana or Almaty. There is no motivation for me to go into the real sciences. These kinds of vocational skills will continue to find less and less favour among the people unless the government consciously pushes for it, so government policy is very important.

I think pure diversification is still a while away, and the way I see it, it will happen in one of two ways. One is by necessity, such as the example of Singapore. The other is a top-down approach through legislation. And I’m not saying legislation that states: “We need to have this many factories,” but “We need to have this many vocational schools and the graduates have to be absorbed into companies and factories.” I think we’re moving in the right direction but we’re not moving straight as an arrow, but swaggering and getting there.

What do think about the efforts to promote Future Energy? EXPO 2017?

Within Samruk Kazyna, where I work right now, renewable energy is one of my focus points. And I am very, very bullish on the prospects of renewable energy worldwide. I understand that the cost of renewable energy has to be subsidized in today’s climate. But what is not known worldwide is that oil is heavily subsidized. If you look at the International Economic Agency’s numbers, oil is subsidized globally to the tune of 2 trillion dollars. Of that, almost 450 billion is by the United States alone, which reflects their higher consumption. You might ask, “What do you mean? I don’t get subsidies when I go to the gas station,” but you are getting it from extraction, from tax defaults, from preferential tariffs when transportation is in place.

So for example, if you had solar power, and you had DC lines all over the place, it would be very easy. But today you have to take solar power, convert DC currents into AC and then put it into the existing infrastructure. So, that’s where you need that subsidy. And technology is such that in solar, wind and hydro power even, the cost is decreasing rapidly. If I have to make a statement, I am very bullish and I think there will be what is known as “grid parity.” Grid parity means conventional energy made from coal, oil or gas and renewable energy will equal. They’re going to be in grid parity within the next couple of years. And that’s the function of rising conventional energy prices and decreasing prices for renewable energy. In that context, having EXPO 2017 is a great masterstroke. It’s spectacular that we’re doing that.

Now, I’m a little bit concerned about how we’re going about it, because I have not read anything about it. But it’s three years down the line and I’m sure it’s in the right hands being done by the right people.

MacKenzie?

Well, look, MacKenzie is there just to do the master plan, it will not be involved in the execution.They’re just saying what the theme is. Do you have the infrastructure, that is going to be dual-use, because after the expo, what are you going to do? It’s not going to be ‘white elephants’ sitting out there. We need to use it for incubation for example. We need to create some convention centers which will be used for doing renewable energy research, affiliated with Nazarbayev University or whoever. We need to have these dual use objects. MacKenzie is just preparing that concept paper. The execution will be on our end.

I think we have to do a good conceptualization, selling that concept, and more importantly, executing rightly, in a cost efficient way. And finally, we need to be able to attract the right kind of people to participate. Because in today’s networked world, Expo does not have the same value as let’s say a hundred years ago, when the only way I can see what technology is happening in Germany and I’m from China, is that you show up there at an expo. That’s not necessary today, so we have to do a very hard sell on this.

What about your lifestyle here?

Since I’ve been here for a while, I spend a lot of my free time in the Fitness Palace where we play squash. There’s a great bunch of people who play squash. I travel around, and also in the summer, fall and spring time I love going out into the steppe. Sometimes hunting, sometimes fishing, and sometimes just to get out of the city because the steppe is beautiful. I have seen almost all cities and towns in Kazakhstan, right from the Ust-Kamenogorsk to the Uralsk, down to Aktau, and South Kazakhstan.

So you’ve travelled throughout the regions and know the situation across the country well. What would you say are the challenges for the aul (village) to survive?

One thing that has become very apparent for me in the last eight years, and I have seen the statistics that support what I’m about to say as well, is that there is a high degree of urbanization happening in this country. I remember when I first came here, this country was almost 50% urbanized, now the number is something like 65%. That is a significant jump for a small population in such a small period of time. That being said, when you have conventional lifestyles being disrupted, that’s what you mean by people staying in the auls, I think the adjustment process is going to be very difficult. To the extent that even today 10% of the GDP is from agriculture, which naturally equates to an aul kind of lifestyle. There is some mechanized agriculture as well, but admittedly, we have a significant number of people who are dependent on an agrarian lifestyle.

I think the challenge is twofold. One is how do you move up the value chain? Are you just making subsistence agriculture by growing small land plots? Or are you essentially cutting out the middleman and bringing produce to the market? Is there a market for your produce to begin with? Are you just making grain, which you know can be collected by a middleman and sold somewhere on the wholesale market?

That kind of value addition I have not seen happen in the agricultural sector. I’ll give you an example: about 15 years ago, in China, which has done spectacular job in agriculture, 20% of their agriculture was cash crops. Cash crops meaning fruits, vegetables; 80% was cereal like rice, wheat, etc. Today, the numbers are exactly the reverse. 20% cereals, and 80% cash crops. That’s why you see so many Chinese fruits and vegetables in Kazakhstan. But for me, that does not make any sense. We have a good agrarian base, we have the funding, so we need to have an agricultural policy. The current tools that are there are inadequate, or inadequately utilized.

So I think I’m not answering your question just about auls but I’m talking about the strategy that expands beyond the aul. We need to have value added, because at the end of the day we are not a factory based economy where we’re going to have thousands of labourers like what the Chinese and the Indians can afford to do. You are going to have mechanized agriculture, you are going to have a more productive agriculture with more machine utensils which means more capital expenditure.

For example, I have noticed that the quality of the meat here is spectacular. Now let me digress a little bit, do you know the Chilean Sea Bass? There is no such thing as the Chilean Sea Bass, but there is sea bass, which you get in the Mediterranean Sea. The Chilean Sea Bass is something called the Patagonian Toothfish. It’s a terribly ugly fish, not that it has to be beautiful for you to like it, but essentially the question was how do you market this fish? What the Chileans did was to call it the Sea Bass and managed to market it as such in the best restaurants in London, New York, and all over the world. A friend of mine from Spain was here yesterday and said to me that she never tasted this kind of lamb. We have extremely good lamb in this part of the world, what have we done for branding? Nothing, it’s the Australians who are doing it. I mean you go to Metro and find New Zealand lamb, and I find that it’s almost criminal to sell New Zealand lamb when you have what you have here. The point I’m making is that we need to brand ourselves. And the brands do not happen just by taking out the ads on CNN and BBC, it has to happen through these small, what I call, soft-diplomacy efforts.

I think I didn’t answer your question directly but I think there are problems in the aul but it’s part of a broader issue. It’s not about giving them hand-outs, or building a nice water tank or a school to solve the solution, we need to bring their income levels up, and I think that’s a challenge.

Do you think the Internet will have an impact on how the government functions or how society works?

Well, for starters, the government sector has become quite internet savvy, in the sense that you have ministers and akims tweeting and having Facebook pages. There is more access. Whether they’re doing it themselves or they’re asking their subordinates to write is a separate story but they’re responsible for the content.

There’s the e-government initiative which I heard about 5 years ago. I have seen it applied very unevenly. Because today you still have to go to pay your tax bill or to get your drivers license and line up. There is still a lot of paperwork and physical interactions, if you will, and that remains a challenge in my mind. I think that in terms of access to information, and having an understanding of what is happening in the country from a political point of view there is more or less free press which is allowed to speak its mind. I haven’t seen a depth of analysis but at least it’s spread out, in a sense that I don’t see very incisive analysis in the local press. There are some outside websites which are ranting but that doesn’t count, I’m talking internally. The debates are sometimes a bit shallow and very superficial. I think what the Internet will do is through blogging and many other social media, the people will be empowered, and I think it’s already happened, to express their views. And I think that’s a good thing.

The Internet has already changed the landscape in the time that I’ve been here, because in terms of physical penetration of the Internet, already Kazakhstan ranks high. My understanding is that the policy makers are acutely aware of this.

What kind of music do you prefer?

I like music of the classical genre. I like opera especially in Almaty, and there is one opening here, I think starting next week. I also like jazz. We’re doing a project outside of Kyzylorda, where the Akim brought a bunch of musicians. It was a kind of singing I’ve never heard, it was essentially a private concert. And I hope to follow up on that.

I have a dombra, I’m a terrible player, but I’m also a terrible guitar player as well.

I have been to some sufi shrines in Turkey and Uzbekistan, just listening to the music. So that’s kind of my music taste. A little bit weird but yeah.

What else would you like to share with our readers?

My message to the readers is that there is a lot more to Kazakhstan than the urban centers. So they need to get out there and homestay with the locals, which I have done, and that’s when they can understand the character of the people and the cities. That would be my suggestion to anybody, because you get a really jaded view living in the capital.

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