DEVELOPMENT CHALLENGES
A former Soviet Republic, Kazakhstan gained its independence in 1991. Since then, it has emerged as a country with macroeconomic stability, achieved through policy reforms and private sector development. In recent years, Kazakhstan’s GDP has grown by 6.2% annually on average, with a dip to 1.2% in 2009 during the peak of the global economic crisis. Moreover, although the country is a relatively recent graduate, today Kazakhstan is a solidly “upper-middle” income country with a steadily increasing per capita GNI, which reached US$7,440 in 2010. Kazakhstan also has a “high” Human Development Index (HDI) of 0.745 and is ranked 68th of 187 countries. However, despite such strong economic performance, significant development challenges remain.
Poverty and inequality
While the percentage of the population living below the minimum national level of subsistence has decreased dramatically (from 46.7% in 2001 to 8.2% in 2009), there are growing regional disparities in income distribution. Not only do some regions experience higher poverty levels than others, but rural poverty is still almost twice as high as urban poverty. This is due to various factors: rural settlement of larger families with more dependents, remoteness from urban centres, lower levels of education, fewer employment opportunities, underdeveloped infrastructure in transport and telecommunications, lack of human and financial resources of local governments to promote development issues, and inadequate integration of local economies into national and regional development programmes.
High unemployment
Compared to other countries in the region, official unemployment in Kazakhstan is low, accounting for only 6.6% of the total workforce in 2009 and down from 7.8% in 2006. However, this improvement has not been felt universally. Women’s unemployment, though decreasing, is still higher than that of men. Similarly, the self-employed population, accounting for 33.7% of the workforce in 2009, is more vulnerable to economic problems, especially in rural areas where subsistence farming is the main source of income, and is often left on the sidelines of the social protection system.
Weak public administration and governance
Kazakhstan has implemented complex public administration reforms since 1997, which have resulted in significant positive outcomes. However, institutional weaknesses and system gaps continue to hinder accessibility to basic social services and thus increase the social and economic dimensions of poverty. Overall, because of the lack of local authorities’ capacities to enforce complex regulations and the existence of rent-seeking behaviour, potential beneficiaries of social assistance may be left without adequate support, even if funding for social services has been growing since 2003.
Skills gap
Universal primary education has been achieved in Kazakhstan, but there remains a disparity in access to high-quality educational services at higher levels, especially for rural dwellers, ethnic minorities and poorer communities. Moreover, the education system does not ensure proper linkages between workers’ skills and job market needs, provoking internal and external labour migration to fill shortages of professionals, especially in the construction and oil and gas industries.
Environmental issues
Ecological issues affecting economic development include vulnerability to natural disasters, increasing water salinity, deforestation, land erosion, desertification, and unsustainable grazing and livestock practices, as well as poor national waste and water management and infrastructure. With its growing energy and industry sectors, as well as the use of outdated coal-based technologies in industrial production and electricity generation, Kazakhstan is responsible for over 40% of air pollution in Central Asia, as the largest producer of greenhouse gas emissions (GHG), of which 80.4% are produced by the energy sector. Despite the existence of a legal framework, limited local capacity for implementation and monitoring is a significant challenge to ensuring environmental sustainability.
KEY TRADE ISSUES
Overdependence on natural resources
While Kazakhstan benefits from abundant natural resources, holding an estimated 65 years of oil reserves and 308 years of coal reserves, its economy is focused mainly on the extraction of minerals and, partially, on their initial processing. In 2010, hydrocarbons, coal and electricity made up 70% of Kazakhstan’s total exports. However, this heavy dependence on resources results in their rapid depletion, represents a threat to the environment and, due to unstable commodity prices, exposes the country to serious terms of trade shocks.
Weak competitiveness and low productive capacity
The range of other internationally competitive products is small, and their value-added is low, due to the weak productive capacity of enterprises in non-oil sectors. Moreover, existing trade support institutions (TSIs) in the country have limited capacities to provide the services necessary for enterprises, in particular SMEs, to increase their international competitiveness.
Regional integration and WTO accession
Although the recent Customs Union with Belarus and the Russian Federation is expected to provide more trade opportunities for Kazakhstan, continued efforts are required to finalize the tariff and customs unification process, in order to reap the full benefits of regional integration. There is also a pressing need to finalize the WTO accession process (which began in 1996), in order for the country to become better integrated into the world economy and diversify its market destinations.
Limited access to finance for SMEs
SMEs are also disproportionately affected by limited access to start-up financing. High interest rates – 25% on average – and collateral requirements, as well as inadequate global financial integration, limited diversification of financial products, and underdeveloped guarantee schemes, restrict access to credit for SMEs. In addition, although Central Asia is becoming an increasingly attractive destination for foreign direct investment (FDI), the bulk of FDI inflows to Kazakhstan, which accounted for 7% of GDP in 2010, are concentrated in the mineral resources sector.
Inadequate trade logistics
Kazakhstan is a landlocked country at a great distance from seaports and major world markets. This remoteness creates an obstacle to the exchange of goods. Despite heavy investment in transport infrastructure in recent years, border-crossing infrastructure (e.g., freight terminals and storage facilities) is underdeveloped. In addition, customs procedures are complicated and variably implemented, resulting in high transaction costs and long delays in foreign trade operations. These circumstances restrict access to a diversified set of foreign markets, which makes Kazakhstan vulnerable to adverse trends in the economies of its trading partners (mainly the Russian Federation).
Weak quality management infrastructure
Kazakhstan also faces challenges with respect to its quality management infrastructure. Clients in foreign markets require enterprises to ensure a certain demonstrable quality of their products, yet quality standards and regulations, as well as certification procedures and approaches, are opaque, incomplete and inefficient. There is also a lack of coordination and cooperation between inspection bodies, forcing enterprises to turn to foreign certification bodies to demonstrate conformity with international standards.
Statistics have been compiled by the World Bank, OECD and UNECE. Information has been adopted from: the United Nations Development Assistance Framework for Kazakhstan 2010-2015; the 2008 United Nations Country Team in Kazakhstan Country Analysis; the 2010 United Nations report on “Millennium Development Goals in Kazakhstan”; the 2010 United Nations report on “The MDGs in Europe and Central Asia: Achievements, Challenges and the Way Forward”; the 2010 UNDP Aid for Trade Regional Review for the Countries of the United Nations’ Special Programme for the Economies of Central Asia (SPECA): Trade and Human Development; and the 2011 OECD report on “Central Asia Competitiveness Outlook”.