President Kassym-Jomart Tokayev believes it is time for Kazakhstan to adopt a new economic model and implement fresh policies to support it. He outlined his vision for the economy in his address to the nation on the first of September.
In the past, the President has noted that the economic development of Kazakhstan is in need of “serious momentum.” He has also observed that we are at an “important historic stage” where Kazakhstan’s economy can no longer develop and grow just by using current approaches.
Having previously criticized Kazakh economists for a lack of creativity and a poor understanding of the efforts Kazakhstan needs to make in order to solve its acute economic problems, Tokayev offered a different approach in this most recent speech. He tasked the government with enacting radical measures to create change. The government will have to translate these general measures into specific and concrete steps towards success.
The most important thing, according to the President, is to “form a strong industrial frame and achieve economic self-sufficiency.” He went on to outline that in order to achieve these goals, efforts should focus on building up Kazakhstan’s processing industries.
This emphasis on processing aligns with the President’s continuous prioritization of the urgent need for diversification in the Kazakh economy. Industries which Kazakhstan plans to use as engines of economic advancement include metal manufacturing, oil refining and gas processing, the construction of heavy machinery, uranium conversion and enrichment, and the production of fertilizers.
In his address, Tokayev stressed that the mining sector should receive particular attention from the government and investors. According to the President, the rare earth minerals industry must become the “new oil” in Kazakhstan. Tokayev pledged that the Kazakh government will give a tax exemption to both local and foreign investors who are willing to come and explore the rare earth bounty of our country.
Agriculture and food processing industries also occupied a special place in the President’s address. The President called for these sectors to increase their output of processed products, as opposed to raw agricultural produce. He set a goal for these higher value processed items to account for 70 percent of the overall agricultural output within the next three years.
Tokayev’s remarks did not fail to engage with the vital topic of energy production. In his speech, the President touched on key issues such as energy security, the development of hydroelectric power stations, renewable energy and natural gas processing. He observed that these must become priority areas in the new economic development of the country. He also raised the sensitive issue of potential building an atomic power station in Kazakhstan, suggesting that public hearings on the matter should begin.
The President’s vision for economic development proved to be far-ranging. Tokayev urged the nation to undertake “breakthrough projects” as part of a strategy for successfully increasing tourism and creating effective transportation links. He also identified further development of the IT sector and increased digitization of the Kazakh economy (and society in general) as priority missions for the government.
In his address, Tokayev set an overall goal to identify fifteen large projects which will determine the industrial future of Kazakhstan and bring long-awaited progress to the country.
While this project-based approach has its merits, to achieve true change the Kazakh government will have to also recognize that the Kazakh economy is not something separate from all that is around it. No project can stand alone. The Kazakh economy is a dynamic system deeply influenced by political and geopolitical developments, demographic and cultural changes, environmental risks, civil liberties, changes in consumer behavior and other factors.
For over thirty years since Kazakhstan became an independent country, our politicians/authorities have embraced many economic models and invented numerous economic programs. These models and programs had the goal of increasing economic growth, supporting financial stability, promoting the diversification of the economy and improving the well-being of the nation.
These endeavors have indeed provided boosts to economic growth, but the fact remains that the Kazakh economy is still heavily dependent on the production of fossil fuels. The development of non-energy industries has been slow at best.
The economy continues to rely on commodity exports, most of which travel through physical infrastructure shared with another country whose role on the global stage is highly uncertain these days. In other words, a significant portion of the country’s GDP is generated from oil and gas revenues, an economy thus prone to energy price fluctuations and production disruptions and an economy heavily impacted by neighboring Russia. It is still an economy where the most significant activity is concentrated in industries that do not require a large workforce and therefore employ a relatively small number of people.
Unfortunately, non-oil sectors such as agriculture, construction and trade, despite having a high employment potential, remain underinvested and often use unrecorded labor for seasonal short-term contracts.
The global financial crises in 1998 and 2008 signaled clearly that Kazakhstan’s reliance on oil would ultimately let the nation down. In 2015, another oil price decline also threw the Kazakh economy off its path to growth. President Tokayev is to be applauded for trying to embrace greater economic diversification to end the overreliance on oil. Diversification alone, however, will not solve all of Kazakhstan’s issues.
While economists and politicians may be tempted to focus on the numeric measures of economic health such as the GDP, there is a human factor that must also be considered. Despite decades of economic growth, many people in Kazakhstan still feel pessimistic about their future. Citizens of Kazakhstan continue to grapple with a lack of affordable housing, high food prices, low job security, corruption issues and rising levels of inequality. Economic plans must take into account addressing the needs of the people and earning their trust.
Since assuming office, President Tokayev has outlined numerous measures aimed at improving the political and economic environment. His approach has included trying to develop an entrepreneurial culture and attempting to lay the foundation for an economy based on new technologies. President Tokayev has also pushed for significant political reforms delegating more powers to the Kazakh parliament and reducing barriers for political parties to register and get into the election process.
While President Tokayev’s efforts deserve recognition and further support, current reforms have not yet targeted the systemic and regional imbalances in the Kazakh economy.
The Kazakh oil and gas sector is located in the remote western regions of the country. The workers in this sector struggle with low pay and challenging working conditions. In the South, the non-oil industries with higher employment potential remain stagnant. This lack of jobs and opportunities leads many young people from the countryside to flock to Almaty and Astana in search of better job and life opportunities. Help must be given to both the workers of the West and the underemployed of the South if the economy is to move forward.
Any economic approach must also take into account that so much of what is important to average Kazakhs has not been addressed in past governmental policies. Issues like safety on the roads, clean air, job security and development of local communities, matter to the people of Kazakhstan and they must matter to government officials.
Do these problems and issues mean that economic reform is impossible? Far from it! Are there any opportunities for Kazakhstan to have an improved economy that can lead to better standards of living for the country’s population? Of course!
Kazakhstan has great economic potential across various industries including the mining of rare earth minerals, financial services, information technologies, digital engineering, tourism and travel, different types of services and many others.
For too long the Kazakh authorities have relied on language that fails to resonate with people’s actual living experience. With President Tokayev’s commitment to change, the government of Kazakhstan has an opportunity before it to focus on responding to the real needs of people. Well-researched and thought-out approaches that create better infrastructure and living conditions, support high-employment industries and focus on alternatives to oil and gas, are required.
Economic improvement is possible but will only be achieved with innovative thinking and a commitment to real action. The President’s recent address gives us hope that true change is underway.
The author is an analyst with a Master’s Degree in Economics from Georgetown University in Washington, DC, with more than 20 years of experience working for the Kazakh government. She focuses on macroeconomics, commodity, financial markets, and economic and social policies in Kazakhstan and globally.