Kazakhstan Overhauls Industrial Development Plan

The first five-year phase of the State Programme for Accelerated Industrial and Innovative Development (SPAIID) has ended. Olzhas Khudaibergenov, a prominent economics analyst and head of the Centre for Macroeconomic Research, outlined the issues and a strategy for going forward in an extended blog entry on the Tengrinews website. 

The main focus of the piece was the lack of focus on Kazakhstan’s manufacturing sector. Its share of GDP fell from 10.9 percent in 2009 to 10.4 percent in 2014. 

Khudaibergenov shrugs off what he considers useless criticism of the programme, but admits that it has its shortcomings. The new plan is designed to mitigate a lot of its existing problems. The first change is to implement a reasonable five-year planning period. Second, the statistics agency was instructed to monitor all indicators on a monthly basis. Third, a programme website where one can find a full list of projects according to geographical breakdown and progress status was established. 

While Kazakhstan’s economy was growing, a number of programmes and policies with contradictory and overlapping aims were launched. With the creation of SPAIID, it was decided that a strategic system of planning should be put forth and that all the old programmes be abolished. SPAIID would be the central reference document. 

Khudaibergenov pointed out that this has led to SPAIID not only driving development in manufacturing, but in all industries in general, including mining, electricity, gas, water, construction, agriculture, tourism, transport and communications. These industries total about 60 percent of the economy. In other words, the manufacturing industry has gone by the wayside.

As Khudaibergenov put it, “too many cooks spoiled the final broth.” While the Nur Otan party approved the concept of the programme, there were numerous other elements that added their own contributions and, of course, the comments and suggestions had to be accepted. 

SPAIID placed no emphasis on the production of consumer goods. Apparently, the document reflected the interests of business, which still is seeking to continue extractive industries and expand existing industries. 

Khudaibergenov notes that while the manufacturing industries have seen growth, it was not due to state funding. The physical volume index rose by 24 percent compared to 2008 (mainly due to a threefold increase in the production of drugs and the opening of automobile assembly plants), which is more than the 16 percent rise seen in the mining industry (during the previous five-years, the trend was exactly the opposite). Up to 70 percent of all manufacturing enterprises were financed with private funds. It might have seemed that Kazakhstan has become a unique example of a place where industrialisation as a whole “does not need” credit.

But the truth, according to Khudaibergenov, is that there was not enough long-term money in the economy and the banks that got burnt in 2008-2009 placed stringent conditions on new loans. The National Bank demanded that the banks first get rid of “bad loans,” because if they did not, only an infusion of cash could revive them. However, what is rotten will only rot further as time goes on. Banks would be glad to clear their balance sheets, but the recognition of losses not only reduced their equity (which is required for additional cash capitalisation), but also led to taxes being paid. The good thing about Kazakhstan’s financial system is that the central bank will restructure these loans, reducing the amount of credit (suffering losses) and also pay taxes on the amount of the reduction. In other words, the development of the financial system went without a mechanism that would allow restructuring bad loans without storing them.

But what happened, happened. The old five year programme is over and a new one is underway, Khudaibergenov said. Now, SPAIID concentrates solely on the manufacturing industry. It is necessary to maintain this focus in the future, changing only the priority of individual sectors (improving one sector, then moving on to another and so on). Also, 600 billion tenge (US$3.23 billion) from the budget will be allocated over the course of five years. This money needs to be fully spent on investments in fixed assets. It is necessary that the same transparency that came with the first five-year plan be employed again. It is necessary to publish the percentage of the 600 billion tenge used every month as well as to whom it was allocated, project statuses and if the next tranche is under consideration, by whom and for how long, in order to increase the responsibility of those who delay the allocation of funds.

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