Key economic development data
- Created on Wednesday, 29 January 2014 04:34
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Kazakhstan is important to world energy markets because it has significant oil and natural gas reserves. Within the next decade Kazakhstan would become one of the world's largest oil producers and exporters. But Kazakhstan’s strategic aspiration is to become a modern, diversified economy with a high value added and high-tech component, well integrated into the global economy. Energy sector is viewed as a good basis to achieve this goal.
The future of the Kazakhstan economy is closely connected with further integration into international economic relations, efficient disposal of unique reserves of hydrocarbon and mineral resources, export of industrial and agricultural products, optimum employment of country's transit potential and also with availability of highly qualified human resources in different spheres.
During the Soviet period Kazakhstan was an agrarian country and raw materials supplier of the former Soviet economy, where the military industry played the dominant role. The main economic content of 21 years of independence has become transition from a centrally planned economy to a market economy. During years of independence Kazakhstan has made considerable progress in implementing complex political, economic and social reforms to establish a politically stable market economy.
The first 10 years of Kazakhstan’s independence were characterized by numerous economic, social and environmental challenges. Due to the destabilizing force of disintegration of the Soviet Union real GDP by 1995 dropped to 61,4% of its 1990 level. This economic deterioration exceeded the losses experienced during the Great Depression of the 1930s.The wide-ranging inflation observed in the early 1990s peaked at annual rate of up to 3000% in mid-nineties.
Nevertheless, since 1992 Kazakhstan has actively pursued a program of economic reforms designed to establish a free market economy through privatization of state enterprises and economic decentralization. Successful implementation of reforms resulted in general recognition of Kazakhstan in 2001 as the country with the market economy (first in CIS countries). Western countries have highly appreciated Kazakhstan’s reforms in the areas of currency convertibility, inflation targeting, foreign investment policy, demonopolization and reallocation of resources.
Being the most successful reformer in the CIS and based on its strong macroeconomic performance and financial health, Kazakhstan became the first former Soviet republic to repay all of its debt to the International Monetary Fund (IMF) in 2000 (7 years ahead of schedule). This contributed to receiving an investment-grade credit rating from major international credit rating agencies. Today Kazakhstan is rated as follows: BBB+/Stable from Standard&Poor's, Baa2/Stable from Moody's Investors Service and BBB+/Stable from Fitch Ratings. Global financial crisis which started at the end of 2007 had multiple implications on Kazakhstan’s economy and exposed underlying vulnerabilities. With lower oil and commodity prices and adverse conditions in international capital markets new challenges for emerging economy have surfaced – declined public revenue, liquidity shortages, national currency’s stability, dependence of financial institutions on external funding, negatively affected investors’ confidence and capital outflows.
In these circumstances the Government quickly stepped in to regulate and stabilize the situation. A set of policies has been introduced under the Anti-Crisis Program to help mitigate economic vulnerabilities and establish a basis for the resumption of strong growth. As a part of the policy Kazakhstan has devalued its currency and vastly expanded its role in the financial sector by entering into the capital of the four largest banks. As of January 25, 2013, Kazakhstan is in the 5th group of risks according to the country risk classification by Organization for Economic Cooperation and Development, OECD. In the 5th group, except Kazakhstan, there are also Azerbaijan, Croatia, Macedonia, Paraguay etc.
Holding significant resources of oil and gas, coal and uranium, Kazakhstan is an important energy player in the world. In 2012 Kazakhstan has produced 79.2 mln. metric tons of oil and gas-condensates (3.6% more than in 2011), 55.731mln. metric tons of coal (+0.4%) and 20.469bln. cubic meters of natural gas (+2,7%).
However, bearing in mind recent fluctuations in the world commodities market, the Government targets its energy policy on further diversification of energy resources, efficient energy use, stimulation of R&D in renewable and raising a profile of environment component. Today investments in natural resources constitute 72% of all investments in economy. 73% of investments in natural resources come from overseas and the rest is generated by the national economy.
Being an integral part of energy sector, a system of pipelines and infrastructure are key elements of a viable energy policy. Kazakhstan’s counterparts (United States, EU, China and Russia) have identified their strong interest to cooperate with Kazakhstan in this area, particularly on trans-continental oil and gas transportation issues. Kazakhstan has made it clear that this fully meets its own vision for the development of multiple energy transportation routes from and through Kazakhstan. Volumes of oil transportation through pipelines are gradually growing and total turnover through pipelines has increased by 27.8% in 2010. Commercial viability, technical and environmental safety and financial soundness are the guiding principles for Kazakhstan’s strategy in this crucial area.
On November 27, 2009 leaders of Kazakhstan, Russia and Belarus gathered in Minsk to sign final agreements on the trilateral Customs Union which launched on January 1st, 2010. Presidents of three countries approved a customs code which comes into force on July 1st, 2010, and a single customs tariff with a transitional period that will vary between 1,5 and 5 years depending on the type of goods. The Customs Union sets up a market with a population of 170 mln. people, aggregate trade of $900 bln., aggregate industrial potential of $600 bln., oil reserves of 90 bln. barrels, and agricultural production of $112 bln. The three countries' current aggregate GDP makes up $2 trln. and the establishment of the Customs Union will enable the three countries to have GDP growth over 15% by 2015.
The establishment of the Customs Union doesn’t affect negatively on the talks on joining the World Trade Organization (WTO). Being a WTO member does not mean that the country cannot be a member of the Customs Union. The EU for instance is the best example of customs unions and member states being in the WTO as is NAFTA. The three members of the Customs Union announced that they would seek to pursue their WTO memberships individually and simultaneously and in a coordinated way following internal consultations within the working groups. The national economy as well as the market of the Customs Union is considered by the Government as the basis to build a modern, diversified, highly-technological, flexible and competitive economy with a high value-added component. This is the central goal of the National Strategy ‘Kazakhstan-2030’ and the Strategic Development Plan of Kazakhstan-2020.
These two strategic programs are the framework of the mid-term 2010-2014 State Program of Accelerated Industrial-Innovation Development which combines a number of regional development and sectoral programs (including the Strategy to enter the 50 most completive nations, 30 Corporate Leaders etc.), and determines the roles of all development institutions, national companies, industrial zones, technological parks and free economic zones. The objectives of the state industrial-innovation policy - to increase increase the national GDP 3.5-3.8 times by 2015 compared to 2000, to decrease its energy intensity by 10% of the 2008th level, to expand non-oil and gas export by 40%, and to boost labor productivity in manufacturing industry – by 50%, in other sectors – by 100%.
The global economic crisis has streamlined the Kazahkstan’s economy by getting rid of those companies and financial institutions that placed all their bets on high-profits and not interested in long-term industrial development. It also acts as a correction instrument to the over-evaluated real estate market and encourages investment in more economically stable productive sectors. The crisis has demonstrated that the Kazakhstan’s overall financial system is solid enough to contain a market collapse.
Further diversification of the economy, social and political stability, tremendous natural resources, attraction of foreign direct and capital investments, implementation of international technical, financial and business standards, accession to the WTO as a member of the Customs Union, promotion of corporate governance, greater transparency and accountability, education and administrative reforms – all these have been identified as the key drivers to reach the strategic goals of the development.
Some highlights on Kazakhstan economy:
Kazakhstan in 2010 has announced a Business Road Map - 2020 which aims at creation of permanent jobs through business development in the regions. According to the program, local executive bodies with approval of Ministry of Economic Development and Trade are authorized to use allocated budget funds for further subsidization of interest rates on loans, issue of partial loan guarantees, development of industrial infrastructure, providing service support to SME, internships, trainings and social assistance;
The state-run scholarship program ‘Bolashak’ (“Future”) since its establishment in 1994 has increased amount of scholars from 187 in 1994 to 1013 in 2009. During 1994-2009 total amount of Bolashak scholars has reached 6679. In 2010 scholars will study under 87 priority majors and conduct research under 110 majors.
Kazakhstan’s gross domestic product (GDP) grew by 5.6% year on year in the first quarter of 2012, down from 6.6% a year earlier. This reflected sluggish trade with and investment from the euro area and the United States. Growth has been sustained by domestic demand associated with the ongoing state-led program to develop industry, but projections of growth are now lowered to 5.8% in 2012 and 6.3% in 2013. The government aims to expand domestic demand through fiscal stimulus funded by the National Oil Fund in the coming years.
To strengthen the finance sector, the central bank eased the policy rate to as low as 5.5% and imposed ceilings on deposits, in response to an expansion of bank deposits and credits in the first half of 2012 that increased the M3 money supply by 6.7%. Banking problems persist, with the share of nonperforming loans rising from 35% at the end of 2011 to 37% at mid-2012.
Year-on-year consumer price inflation eased to 5% in the first half of 2012. Although, food prices were expected to rise in the second half of 2012 as a severe drought affects the domestic grain harvest, the weaker local and global economic outlook will moderate inflationary pressure, and inflation is now projected to reach only 6.3% in 2013.
Prudent fiscal policy in the first half of 2012 supported a projected budget deficit not exceeding 2.5% of GDP. Net external reserves increased by more than 10%, and National Oil Fund assets grew by almost 18% in the first half of 2012. Total external debt increased to $129.3 billion (67.6% of GDP) at the end of March 2012, but public sector debt remained low at less than 3% of GDP.
External trade remains robust despite the deteriorating global environment. The current account surplus slightly narrowed to $7.5 billion in the first half of 2012, but the trade balance for the full year is was unchanged from 2011. Given strong oil export revenue, the current account surplus increased in 2012 and is now projected to widen further to 3.5% in 2013, with production commencing in the Kashagan oil field.
Kazakhstan in 2009 signed loan agreements with leading international financial institutions (World Bank, Asian Development Bank, Islamic Development Bank and Japan International Cooperation Agency) for amount of $3.4 bln to finance construction of transcontinental highway "Western Europe - Western China". Total cost of the project is $5.2 bln and Kazakhstan’s section makes 2,787 km (1,731 miles) out of total length 8,445 kilometers (5,247 miles). Kazakhstan also has accommodated 8000 foreign companies (270 of them are companies listed in the Fortune-500) which invested in Kazakhstan economy over $12.6 bln. of foreign direct investments.
Kazakhstan continues implementing of the Extractive Industries Transparency Initiative with the aim to deliver a clear signal to international investors community and financial institutions that Kazakhstan commits itself to greater transparency and accountability, improvement of investment climate and governance. Kazakhstan will further promote greater economic and political stability throughout the country based on principles of decentralization, industry specialization, free market competition and transparency.
Kazakhstan in 2009 has adopted a law on Islamic finance and established the first Islamic bank in Kazakhstan, Al Hilal. Legislation allows Islamic financial instruments to be listed on the Kazakhstan Stock Exchange. The authorities are aiming to attract about $8 bln in inward investment from Islamic banks over the coming decade. Looking ahead, the issuance of Islamic bonds by Kazakhstan-based companies is expected to drive the market for Sharia finance.