Kazakhstan fails to kickstart "industrial revolution"

By bne IntelliNews July 3, 2014

Naubet Bisenov in Almaty -


Kazakhstan has failed in attempts to kickstart an "industrial revolution", President Nursultan Nazarbayev announced on July 2. By way of contrast, the role of manufacturing in the economy has fallen, despite the government and investors pumping billions of dollars into the sector, as services and hydrocarbons increase in importance.

A response to the global economic crisis, in 2009 the Kazakh government adopted an "innovative-industrial" programme for 2010-2014. The ambitious plan aimed to expand the economy by 38.4% to 2014; the manufacturing sector was set to grow nearly 40%. Public spending on the programme totalled nearly $25bn between 2010 and 2013; a further note $15bn came from private investment.

However, the scheme has failed, Nazarbayev told a government meeting. "We haven't managed to create a critical mass of successful industrial projects based on innovations and modern technologies - projects which [would] have served as a launching pad for an industrial revolution,"  the president said.

Illustrating the point, Economy Minister Yerbolat Dossayev reported the economy grew 30% over the period of the program, and the manufacturing sector 24.5% - both figures clearly below target. The programme also failed to increase the role of manufacturing, which decreased from 11.8% of GDP in 2008 to 10.7% in 2013. The sector's share of the country's exports fell 10 percentage points in the last five years to 20%, despite the extractive sector seeing no significant growth in output. 

Dossayev said the decreasing role manufacturing was due largely to high growth rates in the services sector and an 11.5% jump in oil prices across the period. However, at the same time, gross manufacturing exports actually shrank by over $500m compared with 2008, to leave them at $19.5bn in 2013. Meanwhile, Kazakhstan's total exports grew from $71.2bn to $82.5bn.

Under the industrialisation program, the government claims 672 industrial enterprises have been put into operation. However, only 300 are operating at full capacity and 70 are working at no more than 25-30% of capacity, Industry Minister Asset Issekeshev told the meeting.

All of which only places greater importance on a second stage of the programme, which will run in 2015-2019. Investment during this phase is set to total $36bn, 90% of which will be private investment, claims Nazarbayev. Dossayev said the budget will allocate $3.5bn, while $5.5bn will come from Kazakhstan's national oil fund. The second stage of the programme aims to increase manufacturing output by 43% and productivity by 40%.

Unusually for Kazakh officials, who have credited achievements in the economy to the Moscow-led Customs Unions since its establishment in 2010, Nazarbayev blamed the worse than expected performance of the economy under the programme on "negative events in the global geo-economy".

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