Knowledge-based economy

Kazakhstan needs robust reforms to boost productivity and growth

In the 2000s, Kazakhstan had experienced exceptional economic growth — supported by rising oil and gas prices, rapid growth of domestic demand and soaring investments. During this time poverty and inequality declined significantly. However, since the global economic downturn of 2008, Kazakhstan's growth has slowed markedly from over 10 percent in 2000-07 down to 4 percent in 2008-17. Today the World Bank has presented the new Country Economic Memorandum “Kazakhstan: Reversing the Productivity Stagnation”, in which the experts tried to find out reasons why this happened. Read more in the piece of the Information Agency.
Astana city08 November , 17:11

The Memorandum underlines that increasing productivity and growth will require robust reforms to strengthen the private sector, including strengthening the competitiveness of companies, reducing the role of the state in the economy, strengthening the rule of law, and fighting corruption.

“Kazakhstan’s productivity growth has witnessed a significant slowdown in recent years, curbing the rise of incomes and limiting welfare gains for most of the population. This calls for ambitious reforms to strengthen the private sector as they can lead to greater overall productivity in the economy, through diversification and competitiveness”, Julio Revilla, World Bank Lead Economist for Central Asia, said.

In his words, without a noticeable increase in productivity, the level of per capita income in Kazakhstan will constantly decline.

“Without substantial increase in productivity, diversification of the economy and support for the private sector, investments will have to rise to undersized values. More than 50 percent of GDP to achieve at least 2.5 percent annual growth in 15 years. And even in this case, they will not be enough to achieve the long-term growth goal of entering the 30 most developed countries of the world by 2050”, the speaker said.

Jennifer Keller, World Bank Lead Economist, named the reasons of Kazakhstan’s productivity decrease and presented solutions.

“Firstly, opening companies and entering the market. Creating a level playing field for all firms. This means reforming long-standing structures that protect state-owned and other well-connected firms and handicap new ones. The fact that older, less productive firms are able to stay in business shows that the process of creative destruction—whereby less productive firms exit the market, making room for newer and more productive ones—is not happening”, she said.

Strengthening the rule of law and dealing with corruption more aggressively became the second solution.

“The judicial system is seen as one of the biggest barriers to an efficient and highly productive economic system. The World Bank Enterprise Survey data identify corruption as the top obstacle for private businesses in Kazakhstan across all sectors. The government should consider reforming public procurement procedures, as well as revising the burdensome and costly trading procedures, and border administration, to improve transparency”, the World Bank Lead Economist continued.

According to the experts, introducing structural changes in the economy is also one of the reforms to boost Kazakhstan’s productivity and growth.

“This is critical to boost private investment and reduce a disproportionately large role of the state in the economy. The strong presence of state-owned enterprises results in inefficient prices, quota-based production, and a number of other market distortions that serve to suppress the domestic private sector. Reducing the role of the state requires addressing private-sector distortions and eliminating the favorable treatment of SOEs”, J. Keller concluded.

For reference: a Country Economic Memorandum is an analytical report by the World Bank. It provides a comprehensive analysis of a country’s economic developments, prospects, and policy agenda, identifying policy reforms for key economic sectors. Such a report is issued every three-four years.

Saltanat Sarina