Kazakhstan’s Journey Towards Economic Diversification

A friend decided, as a Covid distraction, to eat only cabbage. He loved cabbage, always had. Boiled, fried, steamed, microwaved, he enjoyed the versatility of cabbage, and the 400 varieties from which he could choose. And, unlike pasta and toilet paper, the shops had plenty.

Mark Beer

Initially, he was an enthusiast. A convert, and like a zealous ex-smoker, did little but extol the virtues. Yes, there were some odorous side effects, but they were nothing compared to the extra money in his pocket (cabbage is cheap), and the simplicity of his schedule.

However, as Director Morgan Spurlock found out in his social experiment ‘Supersize Me,’ singularity is not the spice of life. 

I do hope, as you read this, you agree with me that having a cabbage only diet was mad. We knew it wouldn’t work, and that the initial benefits (some extra money and a lazy-like focus) would over time be replaced by illness, frustration and resentment. In short, it was not sustainable.

So why on earth do nations think that having only one source of income, their calorific equivalent, would be sustainable? 

In part, it’s the attraction of easy money. 

But, just as we look down on the trust fund children, frittering away their family’s wealth, so we should question Governments that are spending their citizen’s inheritance by selling off a nation’s natural resources.  

And as befalls all those who succumb to the Siren’s call of easy money (or easy cabbage), it doesn’t take long for the pusher to become the addict. For the Government pleased with its new revenues, to become dependent on the buyer’s largesse.

And when the buyer realises that the addiction of the filthy lucre has its hook firmly into the nation’s cheek, it takes control.

And do those buyer’s have the best interests of the selling nation at heart, or their own? Indeed, there is no incentive to help a supplier of, say, oil, or gold or uranium develop a more stable, resilient and sustainable economy. Quite the opposite – to guarantee supply on the best terms, its best to keep the seller weak and desperate for the next fix of easy money.

And that’s why single product economies do so badly. They have the power of the product, but become addicted to the easy money it generates and, quite often, become abused by dominant buyers looking to weaken and subjugate. In Saudi Arabia, for example, which is the Middle East’s largest economy, GDP growth has varied dramatically over the years, ranging from −22 percent to +10 percent, almost entirely correlating to oil price changes and shocks, over which it has little control.

And the answer? Nations must realise that their national assets are not to be frittered away, like family heirlooms, for a short-term fix. They must be sheltered and nurtured for every citizen and every future citizen. They are the lifeblood of the country and the cornerstone of its future. 

The alternative is to invest in the development of a diverse, sustainable and trusted economic ecosystem. The first step on the recovery journey is to diversify export-oriented sectors, but for the benefit of long-term sustainability, nations must also look at the bigger picture. A strong institutional and legal framework, alongside workforce development, are critical to success: Implementing such comprehensive strategies isn’t easy, but the result—a diverse, stable, and growing economy—is worth the effort.

As the strategy arm of PwC has suggested, in order to implement the most effective diversification strategy, nations must first establish strong economic institutions capable of overseeing the process.

And in Kazakhstan, we see such initiatives in the First President, Nursultan Nazarbayev’s 100 concrete steps, setting out a road map to bring Kazakhstan into the club of the world’s 30 most developed countries. Those steps tied in with Kazakhstan’s 2050 Strategy master plan, and the goals set earlier in the Nurly Zhol new economic policy and National Plan. The reforms included the formation of an effective state apparatus; ensuring the rule of law; facilitating industrialisation and economic growth; developing national identity and unity; and enhancing government accountability. 

And so it comes as no surprise that the Second President, Kassym-Jomart Tokayev, pointed out on July 3 the critical role of the Astana International Financial Centre in delivering economic diversification and growth for the country. Tokayev stressed the role of the AIFC in defining the strategic development course of the country and the need to design a stronger institutional and legal framework as part of Kazakhstan’s diversification strategy.

“The domestic securities market is still underdeveloped. We need firm and decisive measures. I strongly recommend the Agency for Regulation and Development of the Financial Market with the AIFC to develop a new and bold regulatory framework to integrate and develop the domestic securities market,” said Tokayev.

Amid global disruption caused by the pandemic and the plunge in oil prices as well as the “unprecedented outflow of capital from developing countries,” new reforms to diversify the economy are needed, said Tokayev.

As well as the institutional and legal framework that the AIFC, the National Bank and the Supreme Court of Kazakhstan are all working hard to develop, the second prerequisite for successful diversification is the development of the Kazakh workforce.

Fortunately, Kazakhstan is blessed with an energetic, educated and empowered youth – a “demographic dividend.” As the second ingredient in the recipe for economic diversification, Kazakhstan’s youth should continue to remain the recipient of investment and development at all levels.

And, thirdly, there is increasing evidence of a relationship between economic diversification and sustainable development (see Booz & Company’s research), suggesting that this might be another essential ingredient of a successful diversification strategy.

So, just as one must be mad to try to develop a sustainable and healthy lifestyle based entirely on eating cabbage, the pathway to a healthy economy also requires a diversified approach; one that values a country’s assets, develops its youth and builds the institutional and legal capacity for a long term and sustainable economic environment. Kazakhstan’s journey began in 2015 with the 100 Concrete Steps, and with the rapid growth of the AIFC, is set to accelerate in the years to come.

Mark Beer OBE is co-Founder of Seven Pillars Law in Kazakhstan, as well as being a visiting fellow at Oxford University, a visiting professor at Shanghai University for Political Science and Law and a member of the World Economic Forum’s Expert Network.

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