GROUP Assignment Cover Sheet

Course Student
RSM 2616 Numbers: 1009732577
Code:
Andrey Nurumov
Course Inclusive Global Development: Economic Prosperity Please list
Title: through Human Development all student
1009713981
numbers
Instructor included in Anushikha Banerjee
Anil Verma and Gordon Betcherman
Name: this group
assignment.
Assignment
Country report - Kazakhstan
Title:

Date: June 26, 2023

Code of Behaviour on Academic Matters.

Contribution of team members: both persons contributed equally in all parts to this report.
Comment: our analysis for the country is mostly in the period from 2000 till 2019.

I. Introduction – Kazakhstan.
Reason to choose Kazakhstan. Since 2000, Kazakhstan
showed a tremendous growth in the economy (real GDP
increased in 3 times and having no decrease annually till
start of 2020)1. Likewise, the country transformed from a
country with “one-ruler” to country with more competitive
political system and constitutional reform. Finally, a country
establishment has ambitious goals till 2030 to prosper
further in human and economic development.2
Brief description of the country. Kazakhstan is an upper-
middle income country in Central Asia3, an heir of Golden
Horde, a government that what established in 13th century4.
Kazakhstan became an independent country in 1991, before
that year it was part of USSR for almost one century5.
Kazakhstan has an area of 2.7 million square kilometers (9th in the world)6 with continental
climate7, and reached population of 19 million people8. Around 70% of population are Muslims,
and 17% confess Orthodox Christianity; official languages are Kazakh and Russian.9
GDP of Kazakhstan is more than 200 billion US dollars, around 20% of which is export10.
Kazakhstan is 61st country by GDP per capita, PPP (60th – Malaysia,62nd – Chile).11 Main
trading partners are China, Russia, and Europe (Italy, Netherlands, etc.)12. Kazakhstan is rich
in resources, and main export products are oil & petroleum (around 50%), then cooper, gas,
and uranium13.
Government system is a President Republic.14 During last years, government tries to be
geopolitical neutral and rely on United Nations in international issues.

1
World Bank
2
https://www.akorda.kz/en/official_documents/strategies_and_programs
3
World Bank
4
Wikipedia
5
Wikipedia
6
https://www.worldometers.info/geography/largest-countries-in-the-world/
7
Wikipedia
8
World Bank
9
Wikipedia
10
World Bank
11
World Bank
12
www.rbc.ru
13
https://wits.worldbank.org/CountrySnapshot/en/KAZ
14
Wikipedia
2
Based on the description, we define the following important characteristics of Kazakhstan:
1. Central Asian country with no access to a sea / an ocean.
2. Rich in oil & gas and other mining resources.
3. Former planned economy.
4. Citizens are with traditional and family values.
Based on characteristics of Kazakhstan, we determined standard and aspirational
comparators:
Standard comparators (same level of income):
1. Chile (closest country by GDP per capita, PPP; rich in mining resources)
2. Malaysia (closest country by GDP per capita, PPP; former planned economy)
3. Russia (rich in oil & gas and its export-orientation, former planned economy)
4. Turkey (close to GDP per capita, PPP (3 places above); Islam is the main religion)
5. Turkmenistan (2nd in Central Asia after Kazakhstan by GDP per capita, PPP; rich in oil
& gas; former planned economy)
Aspirational comparators: Poland, Saudi Arabia, Canada. (All three are rich is natural
resources and have large territories; population only ~2 times larger than in Kazakhstan).

3
 II. Review of main economic and human development trends.
General Economic profile.
Figure 1: GDP per capita, PPP and GDP per capita in 2019 among comparators15

10593
Average (among 6 countries)
25886

7345
Turkmenistan
15625

9103
Turkiye
27708

Russian Federation 11536

30068

11132
Malaysia
28842

14632
Chile
25609

9813
Kazakhstan
27464

0 5000 10000 15000 20000 25000 30000 35000

GDP per capita (current US$) GDP per capita, PPP (current international $)

In 2019, GDP per capita for Kazakhstan was around 9800 USD, and GDP per capita, PPP –
around 27,500 USD (61st country in the world)16.
Structure of the economy.
Figure 2: Structure of economies in 2019 (% of GDP, value added)17

45% 47%
53% 53% 52%
59%

0%
18%
11% 13% 17%
9%
42%

32% 31%
27% 31% 25%

11%
4% 4% 6% 3% 6%

Kazakhstan Chile Malaysia Russian Federation Turkiye Turkmenistan

Agriculture, forestry, and fishing Industry Manufacturing Services

More than 50% of economy is services; at the same time share of Industry (Oil & Gas is
included in it) is 32% - the second largest among peers. Likewise, the share of manufacturing
is lower than in Russia, Turkey, and Malaysia.

15
World Development Indicators
16
World Bank
17
World Development Indicators
4
Structure of trade.
Figure 3: Exports of goods and services* (% of GDP)18
70

60 57 57

53 53
51
48 49
50 47 46
46
44 44
42
39 39
40 38
36

32 32
29
30

20

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Kazakhstan Russian Federation Chile Turkmenistan Turkiye

*Malaysia was excluded as an outlier

Share of export in Kazakhstan’s economy is highest among peer group – 36% of GDP. Even
though since 2000, Kazakhstan has become less dependent on export, last 5 years that
dependability has increased again.

Figure 4: Structure of Export of Kazakhstan (USD 54 billion) in 201919

18
World Development Indicators
19
Harvard: Atlas of Economic Complexity
5
More than 75% of all export related to resources: minerals, metals, and chemicals. Even
though metals and chemicals are planned to use in the future of economy, oil and coal usage
plan to decrease globally till 2050. This represents more than 40% of current Kazakhstan’s
export or more than 10% of economy GDP, as well as oil & gas incomes gives more than 40%
of government budget.20
At the same time, there is good diversity of trade partners: Kazakhstan trades almost equally in
USD with China, Russia, and Europe.21

FDI Investments.
Figure 5: Foreign Direct Investment inflows, % of GDP (average per year during different
periods: 2000s, 2010s, 2015-201922

3.4
6.0
1.6
2015-2019 1.5
3.1
4.3
4.2

4.5
8.2
1.5
2010s 1.9
3.4
6.8
4.7

5.2
7.3
1.6
2000s 2.5
3.0
6.5
10.2

0.0 2.0 4.0 6.0 8.0 10.0 12.0

Average (among 6 countries) Turkmenistan Turkiye Russian Federation Malaysia Chile Kazakhstan

FDI inflows in Kazakhstan is a higher proportion of GDP than among peers – 4.2% of GDP on
average in last 5 years (around USD 6-8 billion annually on average), 4.7% - in 2010s, and
10.2% in 2000s, that gave significant stimulus to the economy growth.
To sum up, Kazakhstan’s priority is to continue stay open in terms of trade as well as foreign
direct investments.23

20
https://www.trade.gov/country-commercial-guides/kazakhstan-oil-gas-equipment-and-services
21
www.rbc.ru
22
World Development Indicators
23
https://www.akorda.kz/en/official_documents/strategies_and_programs
6
Government budget and finances.
Figure 6: Net Government Budget (income – expenses), % of GDP24
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
-3.5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Budget of Kazakhstan is balanced, and from 2000 till 2019 deficit has never exceeded 3%.

Figure 7: Government Debt, absolute value and % of GDP25

18 30%

15 25%

12 20%

9 15%

6 10%

3 5%

0 0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Debt, in Tenge tril lion* Debt, % of GDP

* 1 USD = 453 Tenge on June 28, 2023

Till the end of 2019, government debt of Kazakhstan did not exceed 25% of GDP and was less
than USD 40 billion.

24
Halyk Bank; Ministry of Finance (Kazakhstan)
25
Halyk Bank; Ministry of Finance (Kazakhstan)
7
Incomes. Kazakhstan has National Fund (a sovereign fund) from 2000,26 a fund that forms
mostly from taxes of resources industries and represents around 1/3 of government annual
incomes. Other main sources of income include corporate taxes (15% of income), personal
taxes (12.5%), Value Added Tax - VAT (21%), International trade taxes (12.5%).27
Expenses. In 2019 Government expenditures were around USD 35 billion. Split by categories
is below.
Figure 8: Distribution of government expenses by category28

3% 3% Social expenses
5%
Education
5% 26%
Economics
5% Healthcare
Housing and Communal Services
6% Security
Government servi ces
7% Debt repay ments / interest

17% Military

10% Culture

12% Other

Unemployment.
Figure 9: Kazakhstan Labor force, Employment and Unemployment29

Kazakhstan has stable unemployment which is below 5% in 2017-2019. Moreover,

Kazakhstan has increasing trend in Labor force due to positive demographics (population
increase by more 1%+ annually on average since 2000 till 2019).30

26
In Russian: “Национальный Фонд”. www.online.zakon.kz
27
Ministry of Finance (Kazakhstan)
28
Halyk Bank; Ministry of Finance (Kazakhstan)
29
World Bank
30
https://www.macrotrends.net/countries/KAZ/kazakhstan/population
8
 Growth, Inclusion, and Sustainability indicators.
Growth indicators.
Figure 10: Real GDP in 2000-2019 (100% - GDP in 2020 for each country)31
500%
450%
400%
350% 305% 319%
282% 293%
275% 279%
300% 249% 264%
238%
250% 221%
197% 204% 206%
181%
200% 164%
136% 149%
150% 113% 125%
100%
100%
50%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Kazakhstan Chile Malaysia Russian Federation Turkiye Turkmenistan

Kazakhstan is the second among peers for increasing real GDP since 2000, by increasing on
6.3% annually on average. Even though, the growth decreased in 2010s (see figure below), it
was still in the range of 4-5% in last 3 years (2017-2019), that is above world economy growth.
Figure 11: Real GDP growth in 2000-2019 in Kazakhstan32

In Real GDP per capita, PPP (see graph below), Kazakhstan is align with trend of other 4
peers.
Figure 12: Real GDP per capita, PPP in US dollars33
35000

30000

25000

20000

15000

10000

5000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Kazakhstan Chile Malaysia Russian Federation Turkiye Turkmenistan

31
World Development Indicators
32
IMF
33
World Development Indicators
9
Figure 13: Nominal GDP in 2000-2019 in Kazakhstan34

Even though, real GDP in Kazakhstan has an above average positive tendency, nominal GDP
fluctuates and depends on price of oil (see graph below):

Figure 14: Brent oil price and GDP change of Kazakhstan35

Real GDP was taken for growth analysis, as Kazakhstan national currency devaluated in
several times in last 2 decades, as well as inflation in majority of years achieved 10%+ (in 4
years during 2000-2019 it was even around 20%).36. At the same time, from 2016 there was a
decreasing trend in inflation: 13.6% (in 2016), 11.2% (2017), 9.2% (2018), 7.6% (2019).37

34
IMF
35
International Journal of Energy Economics and Policy
36
World Bank (Inflation, GDP deflator)
37
World Bank (Inflation, GDP deflator)
10
Inclusion indicators.
Figure 15: National poverty rate in Kazakhstan and comparators38

Kazakhstan has the lowest poverty rate (around 4%) among peers, which is about 40% which
is better than comparators.
According to the World Economic Forum’s 2020 Global Gender Gap report, Kazakhstan ranks
72nd out of 153 countries. Moreover, it is 37th in terms of economic participation and
opportunity, 63rd in education attainment, 74th in health and survival and only 106th in political
empowerment.

Figure 16: Inequality rate (Gini index) in Kazakhstan and its comparators (0-100 scale)39

Kazakhstan has one of the lowest Gini indexes among peers, that says that inequality is not a
major issue in the country.

38
World Bank
39
World Bank
11
Sustainability indicators.
Figure 17: Human Development Index in Kazakhstan and its comparators in 2000-201940

Kazakhstan is in the middle in terms of Human Development among its peers.

Dimension 1 of HDI: Long and healthy life.

Figure 18: Life expectancy at birth (years) in Kazakhstan and its comparators41

Kazakhstan has one of the lowest life expectancies among peers, 73 years. That is mainly
explained by earlier death among men. (less than 71 years42). Kazakhstan healthcare system
is ranked 64th by WHO.43

40
Human Development Reports
41
World Bank
42
World Bank
43
World Health Organization
12
Dimension 2 of HDI: Education.
Figure 19: Literacy Rate44

*Note: For Kazakhstan and Russia data is taken from 2018.

Kazakhstan has the best literacy rate among peers.

Figure 20: Education index among countries in 201945

Kazakhstan has the best education index among peers.

44
World Bank
45
United Nations Development Program
13
Dimension 3 of HDI: A decent standard of living.
Figure 21: GNI per capita, PPP (in USD) in 2019 by countries46

GNI per capita, PPP is among lowest among peers for Kazakhstan (less than $25,000).

Sustainable development.
Figure 22: Sustainability Development Index by country47

*Countries are ranked by their overall score. The overall score measures the total progress towards achieving all
17 SDGs. The score can be interpreted as a percentage of SDG achievement. A score of 100 indicates that all
SDGs have been achieved.

Kazakhstan is in the middle among peers (66th place in total ranking) in terms of sustainable
development index. At the same time, Kazakhstan has made more efficient environmental
protection one of the top priorities for the next few years.

46
World Bank
47
https://dashboards.sdgindex.org/rankings
14
Finally, we analyzed Bertelsmann Stiftung’s Transformation Index (BTI) of Kazakhstan (see
graph below) in terms of implementation of policies in political institution improvement,
economic transformation, and governance to improve Kazakhstan to stable and market
economy.48 Kazakhstan is ranked 79th with key issues in Political transformation – such as
Stability of democratic institutions, Rule of law, and political participation.49 Finally Kazakhstan
is 94th among 180 countries in Corruption Perception Index.50
Figure 23: BTI Transformation index in Kazakhstan in 202251

48
https://bti-project.org/en/methodology
49
https://bti-project.org/en/reports/country-report/KAZ
50
https://www.transparency.org/en/cpi/2020/index/kaz
51
https://bti-project.org/en/reports/country-report/KAZ
15
 III. Key strengths, challenges, and underlying question.
In this section we clarify key strengths, challenges and the underlying question based on our
analysis in part II: Review of main economic and human development trends.
Strengths of Kazakhstan:
1. Open economy with large trade flows
2. Rich in natural resources
3. Located between 3 large trade partners:
China, Russia, and Europe.
4. The leading country in Central Asia
5. High level of foreign direct investments
(FDI)
6. Sustainable fiscal rules
7. Demographic population growth and
stable increase in labor force
8. Low poverty rate
9. Low bureaucracy in business
environment52
10. High level of generally educated people
Challenges.
1. Dependence of economy growth and
government budget on energy prices.
2. No strong stability of democratic
institutions.
3. No strong legal institutions.
4. Consideration by international business
partners as a country-satellite of Russia
5. High inflation environment (5%+) and
devaluation of currency
6. Large difference between nominal and
PPP characteristics (ex. GDP per capita)
– harder to attract international high-skill
talents.
7. Low political participation of population
8. Corruption
9. Low life expectancy among men

Underlying question:
Kazakhstan needs to diversify economy and government income from Oil & Gas industry.

52
World Bank – Enterprise Surveys “Kazakhstan 2019”
16
 IV. Constrains. Suggestions and policies for future development.

Constraints of Kazakhstan.
Impossible to change:
1. Landlocked position in Central Asia among China, Russia, and Europe
2. Resources are significant part of GDP in Kazakhstan
Hard to change:
3. Corruption
4. Low level of political improvement in country
5. Costs of a green transition
Possible to change (main focus of our policies proposition):
6. Inefficient financial intermediation and low affordable financing for business investments
(Figure 24)
7. Low investment and implementation of innovation & technology among firms (Figure 25)
8. Low participation of firms for human capital development (Figure 26)

Figure 24: Sourcing of financing for purchasing of fixed assets53

Firms in Kazakhstan underinvest in technology and innovation (see Figure 25).54 In 2-2.5 times
less firms in Kazakhstan introduced process innovation in comparison with Europe & Central
Asia, and among All countries. In 5 times less firms in Kazakhstan invest in R&D, and 2 times
less firms introduce a new product or service.

53
World Bank – Enterprise Surveys “Kazakhstan 2019”
54
World Bank
17
Figure 25: Parameters of Kazakhstan’s firms with regard to Technology and Innovation55

Finally, there is a low participation among firms in human development (See Figure 26).56 Top
3 business environment constraint is “inadequately educated workforce”.57

Figure 26: Percentage of firms offering formal training58

Policies.
All policies below is directed to resolve the underlying question: Kazakhstan needs to diversify
economy and government income from Oil & Gas industry. Likewise, we cover economic as
well as human development initiative to eliminate constraint and challenges.

Below there are 3 challenges that our policy will addresses. We see a connection in low
diversity of economy with these constraints:
1. Inefficient financial intermediation and low affordable financing for business investments
2. Low investment and implementation of innovation & technology among firms
3. Low participation of firms for human capital development

55
https://www.enterprisesurveys.org/en/data/exploreeconomies/2019/kazakhstan
56
World Bank – Enterprise Surveys “Kazakhstan 2019”
57
World Bank – Enterprise Surveys “Kazakhstan 2019”
58
World Bank – Enterprise Surveys “Kazakhstan 2019”
18
First, key new strategic industries need to be identified, in which economy should diversify
the economy. Analyzing the economy and global trends, we propose:
1. Technology
2. Construction
3. Manufacturing
Below is list of 7 policies that we recommend implementing.
I. Efficient financial intermediation and affordable financing for business investments.

Policy 1.1: Monetary policy to stabilize inflation around 4%. This allows to have Central
bank rate around 5-7% and interest rates for business loans – lower than 10%.
Russian monetary policy is the best relevant example currently from high inflation (5%+) in
2000s, Russia now has lower inflation than Canada.59

Policy 1.2: Modernize pension system – use Canadian case.

Canada is the relevant best example here, starting to establish its modern pension plan
structure in 1960s.60 Pension plans’ financing is “long-money” and can be used for investment
for in public assets for return in infrastructure, and private equity investments key new strategic
industries.
Moreover, due to positive demographic it will creates sources of prosperity for current young
generation in several decades.

Policy 1.3: Creation of national financial institution: (a) for Small-Medium businesses
and (b) for Business Development purposes.
BDC, a Canadian bank, is a relevant example for these purposes. “BDC's mission is to help
create and develop Canadian businesses through financing, capital and advisory services, with
a focus on small and medium-sized enterprises. As a complementary lender, we offer loans
and investments that fill out or complete services available from other financial institutions”.61
BDC bank was founded more than 75 years ago and works will around 100,000 Canadian
entrepreneurs.62

Policy 1.4: Subsidize credits interest rate for businesses in new strategic industries.
Short term measure with quick wins, when government takes responsibility for 3-5% of interest
of loan in particular industry(-ies) to minimize interest rate for business. For example, Russia
makes this for construction industry to stimulate supply.

59
https://www.cbr.ru/eng/
60
https://www.ssa.gov/policy/docs/ssb/v28n11/v28n11p3.pdf
61
https://www.bdc.ca/en/careers/company/who-we-are
62
BDC
19
II. Improvement of investment and implementation of innovation & technology among
firms.

Policy 2-1: Invest 5-10% of annual sovereign fund incomes (National Fund) in Venture
Capital and Technology businesses.
Saudi Arabia can be used as a reference example here, which has recently launched a $24
billion fund to finance Tech sector in Middle Asia.63 Kazakhstan could make the same,
targeting Tech sector in Central Asia.

Policy 2-2: Establish Almaty International Financial Centre as a hub for fintech and
logistics businesses in Central Asia.
Dubai is a reference example here. It is important to establish international law system, as well
as create tax incentives (ex. income tax, corporate tax, capital gain tax) to come to new
businesses and people.
Almaty is chosen as the largest city and because it has a similar nature with Switzerland and
could be attractive as tourist location.
Fintech is chosen because finance industry is key for innovation functioning in economy.
Logistics – because Kazakhstan connects by railroad for trade China and Russia, and also
connects China and Europe.

II. Improve participation of firms for human capital development.

Policy 3-1: Implement government programs for human capital development in state-
owned companies and government organizations.
Germany is benchmark in this policy therefore we recommend their system. Main part of it
includes to implement in government related organization Apprenticeship: “trainees split their
days between classroom instruction at a vocational school and on-the-job time at a
company”.64

WORDS: 2,875

63
https://www.finextra.com/newsarticle/41221/saudi-wealth-fund-launches-24bn-tech-fund
64
https://www.theatlantic.com/business/archive/2014/10/why-germany-is-so-much-better-at-training-its-
workers/381550/
20