SMEs, the Key to Kazakhstan’s Economic Future

A_Gonzalez_0001When many of the world’s business and political elite gathered recently in Kazakhstan at the Astana Economic Forum, the country’s achievements and potential were plain for all to see: good transport infrastructure, a growing service industry and a government focused on working closer with the private sector.

For many of the country’s exporters, particularly small and medium-size enterprises (SMEs), the reality, however, can be vastly different: an overused railway system, long waiting times at border crossings, complex and costly paperwork requirements that slow down exports and undermine international competitiveness. This is the Achilles’ heel of Kazakhstan’s impressive climb in the ranking of the World Bank’s Doing Business Report over the last few years: while overall, Kazakhstan is ranked 50th for ease of doing business, its ranking for trading across borders has remained unchanged at 186.

A recent survey carried out by the International Trade Centre, the United Nations Economic Commission for Europe and local partners found that over a third of exporters in Kazakhstan face trade barriers when exporting, and some of these barriers are related to procedures imposed by the authorities in Kazakhstan itself.

Entrepreneurship and SMEs: towards a more competitive economy

Supporting the private sector to become incubators of growth, poverty reduction and innovation must be a policy directive and not a policy choice. SMEs, many in the hands of vibrant women entrepreneurs, are the largest source of future growth and employment – they represent the untapped potential of the country. This is why they must be at the heart of any economic policy aimed at stimulating growth.

The Government of Kazakhstan has made the competitiveness of SMEs and support to entrepreneurship a cornerstone of its Kazakhstan 2050 strategy. These businesses represent the country’s future. They are key to lowering Kazakhstan’s dependence on fluctuating commodity prices and ensuring that its rapid economic growth benefits a wider segment of the population.

Economic development requires a conducive business environment coupled with a trade support infrastructure that stimulates international and regional competitiveness of SMEs. While continuing to support extractive industries, government policies should actively promote the development of other sectors where value addition and retention at source are greatest. For landlocked countries such as Kazakhstan, improving trade facilitation is of particular importance, as goods need to transit neighbouring countries to reach wider markets. Lowering transaction costs and waiting times at border crossing is key to the competitiveness of Kazakhstan’s exporters.

The accession of Kazakhstan to the WTO is an important element to help SMEs thrive in global markets: it will ensure transparent, fairer and more predictable rules for SMEs trading with other nations.

To trade, however, it is not enough to remove barriers, cut paperwork and modernize customs systems. Firms must produce products and services for which there is demand in world markets. Investing in productive capacity, developing skills and establishing links to new markets are crucial if Kazakhstan’s SMEs are to take advantage of emerging trade opportunities. SMEs need to acquire technical skills to scale up their business. They need to be compliant with international quality standards, rules and regulations in target markets. They need to develop capabilities to continuously innovate and differentiate and position themselves through marketing and branding.

Supporting export-led growth

Supporting exporting firms makes economic sense: they tend to be more productive and pay higher wages than their counterparts who focus solely on the domestic market. Export markets are often tough for SMEs and they can learn how to integrate into value chains by first becoming suppliers to local subsidiaries of global corporations. Once they have been able to scale up their productive capacities to supply such firms at home, it will be easier for these SMEs to expand regionally and globally.

To support the integration of SMEs into value chains requires coherence between trade and investment policies, improvements in infrastructure and investment in vocational training. It is only through raising the skills and productivity of its enterprises that Kazakhstan will be able to successfully compete against countries which may have a comparative advantage in the cost of labour or which may have direct access to sea routes.

The International Trade Centre, the joint agency of the United Nations and the World Trade Organization, works to internationalize SMEs in developing countries and transition economies. We collaborate with governments to improve the business environment for SMEs; we strengthen institutions to provide support to exporters; we also work directly with the private sector, helping them to find new markets, connect to value chains and meet quality requirements.

For landlocked developing countries such as Kazakhstan, ITC also offers a comprehensive trade facilitation programme. This programme focuses both on policy reform to simplify customs processes and on equipping exporters to comply with regulations. During my recent visit to Astana I offered the government and the private sector ITC’s full support and commitment to assist in ensuring SMEs play their potential in the new Kazakhstan in the making.

The author is Executive Director of the Geneva-based International Trade Centre.

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