Knowledge-Based Economy Essential to Kazakhstan’s Economic Development

476The main basis for the development of Kazakhstan’s society is the formation of a new model of a knowledge-based economy. Its introduction primarily aims to increase the share of finished products in Kazakhstan’s export potential to 70 percent.

 To bridge the gap

In his state-of-the-nation-address, “Kazakhstan’s Way 2050: Common goal, common interests, common future,” President Nursultan Nazarbayev noted the need to strengthen innovation in industrialisation and gave instructions to the government on drafting the second five-year plan for the State Programme of Accelerated Industrial and Innovation Development (SPAIID), for 2015-2019. In addition, the President outlined tasks for introducing a series of principles and standards of the Organisation for Economic Cooperation and Development (OECD) to facilitate the goal of joining the 30 most developed countries of the world. This is to determine the main development path for our society – the formation of a new model of a knowledge-based economy. As President Nazarbayev noted, the creation of new, high-tech economic sectors will require increasing funding for science to not less than 3 percent of gross domestic product, halving energy consumption and increasing productivity by five times, from the current $24,500 to $126,000.

Kazakhstan’s technological modernisation is to follow three key areas of the global technological revolution: biotechnology, nanotechnology and information technology. Kazakhstan has all the prerequisites for the development of at least five of the 16 key areas determined in the world forecast for technological development up to 2020. Coming innovative breakthroughs may include biotechnologies that sharply raise the efficiency of agro-industrial complex, the medical industry and healthcare; the development of information infrastructure based on modern systems of satellite and fibre-optic communications; new cellular communications and other innovations.

The creation of a knowledge-based economy, as the President said, rests primarily on the improvement of science in Kazakhstan. Over the next 10-15 years, we must create a knowledge-intensive economic base, without which we cannot stand on par with and compete with developed countries. This will require improvement of our legislation on financing, intellectual property protection and support for research and innovations, as well as the commercialisation of scientific research.

Kazakhstan’s domestic innovation policy covers many areas that have been developed globally. However, not all measures provide a proper return. Sometimes, private business cannot be relied on to support research and innovation. Therefore, it is necessary to stimulate business and research, including through enhancing the role of foreign investors in the development of science in Kazakhstan. We should conclude contracts not only with industrial companies, but also with research institutes. Abroad, the share of foreign investment in research is up to 20 percent of total spending, while in Kazakhstan the figure is 2.1 percent. Meanwhile, the share of foreign investments in fixed capital in recent years has grown to 30 percent.

The next source of funding is a one percent deduction from the aggregate annual incomes of subsoil users for research and development. According to the former Ministry of Industry and New Technologies, the amount of funding from these sources rose to $250 million over the past year. I believe it is expedient to create a special fund to ensure continuity of funding for innovative business projects; in particular, to establish a fund for technological development, which could be fed by a fixed share of deductions; for example, 0.5 percent of the corporate income of industrial enterprises.

It is also necessary to bridge the gap between the research and business spheres. Today, this problem is being solved through the creation of innovation clusters, technology parks and venture capital funds. However, experience shows that in addition to this, we need technological intermediaries to promote developments in the market, in patenting and licensing, in consulting and in intellectual property management.

 

Legislation is the foundation

Funding alone will not solve this problem. We need to amend Kazakhstan’s Law “On Science.” First, a new Article 23 devoted to the results of scientific activity must be introduced to enshrine in the legislation norms on protecting and using intellectual property. This would help increase the participation of businesses, including national companies, in research activities through implementing joint projects, co-financing research projects and attracting a new generation of highly qualified scientists and engineers.

In addition, we should legislatively provide more favourable tax conditions to attract high-tech corporations from around the world to Kazakhstan. While encouraging the inflow of foreign technologies, however, we should also establish requirements to “localise” finished products and increase local content. These requirements can be included in contracts on technology transfer.

For example, China constantly introduces new rules of the game, thereby forcing foreign corporations to share their technologies with Chinese companies. Machinery and equipment is so far dominating in the transfer of technologies in Kazakhstan, while the acquisition of know-how and licenses is at a low level. In the balance of payments, the purchase of licenses accounts for only 1-2 percent.

The implementation of these measures would require the revision of policy documents specified in the state-of-the-nation address. In order to coordinate the acquisition of foreign technologies, it is recommended to create a national agency with the main objectives of helping determine the need for foreign technologies in various industries, assisting in obtaining and analysing information about alternative sources of technology and helping evaluate and choose technologies.

Next, the management of a knowledge-based economy should be shifted from the principle of scientist-official-scientist to businessperson-official-scientist-businessperson. We must also change the structure of science funding to the following proportions: 20 percent for basic research, 30 percent for applied research and 50 percent for research and development.

Taking into account these suggestions, it is advisable to develop a new law “On scientific, technological and innovation activity,” especially as precedents are available. For example, a federal law on science and state science and technological policy has been approved in Russia and a law on scientific and technological activities has come into force in Ukraine.

 

SMEs are the main tools of the 21st century

The President called small and medium-sized enterprises (SMEs) the main instruments of Kazakhstan’s industrial and social modernisation in the 21st century. In order to help SMEs develop around new innovative enterprises, the state must approve a special list of goods and services, the production of which has not yet been established in the country. Incorporating Germany’s experience and practice, SMEs will be given favourable long-term loans and their redemption may be provided by their goods and services. The risk of loan default can be balanced against collateral or through co-financing of projects. In addition, it is necessary to consider revising the taxation of SMEs engaged in priority manufacturing and significantly reduce taxes to 6-8 percent.

It is also advisable to develop laws on venture funds, commercial confidentiality, secret inventions, transfer of dual-use technologies, results of intellectual activity and public procurements for creation of innovations. It should be noted that almost all developed countries have a system of government stimulation of business. France has programmes to assist innovative enterprises, participating in their cost through subsidies, tax exemptions, preferential loans, venture capital and consulting. The most illustrative example of successful innovation policy, particularly in the development of small and medium-sized business, is China.

Following the experience of successful countries, we should develop a map of innovative science in Kazakhstan in order to form a knowledge-based economy and a new law “On the cluster economy. This must define the legal and organisational basis of the cluster policy and the principles for organising cluster production in the country to help build a unified management system for cluster activities.

 Emphasis is on clusters

There is a need to develop fundamental scientific research on the global economy. The instability of the world economy requires a new global financial architecture, President Nazarbayev has said. Research into trends and patterns of development of the world economy, estimates of the impact of globalisation on national economies, generalisation of theories and practical experience in mitigating the negative impact of global trends on countries’ macroeconomic parameters are very promising.

In this regard, our institute continues to conduct cluster development research, focusing on the impact of accelerated industrialisation on the national economy, on public-private partnerships in the education sector and on procedures and criteria for the self-employed.

The author is director of the Institute of Economics of the Ministry of Education and Science of Kazakhstan.

Get The Astana Times stories sent directly to you! Sign up via the website or subscribe to our Twitter and Telegram!