Daily Times

Economic diversification is the process of shifting an economy away from a single income source towards multiple sources from a growing range of sectors and markets. It helps to mitigate economic volatility and provides a more sustainable path for equitable growth and development.

Kazakhstan is the most affluent Central Asian country with19 million population, having an area bigger than the whole of Western Europe, exports of USD 50 billion, forex reserves of USD 34 billion and 120 BRI operating projects. Kazakhstan is ranked 25th in the World Bank’s Doing Business Index, at 10th place in the Protecting Investors category, positioned 34th in the 2021 Index of Economic Freedom and ranked 29th in the UN e-Government Survey 2020 among 193 countries.

However, this naturally gifted resource rich Kazakhstan is heavily dependent on exports of oil and gas (73%), iron & steel (13%) and chemicals (11%). This scenario has always been vulnerable to negative economic shocks due to volatility of oil prices. Then, the global shift away from fossil fuels and focus on renewable energy sources can have serious consequences for the economy.

The policy makers in Kazakhstan have always made efforts to diversify its economy from hydrocarbon dependency to more innovative sectors. But since coming into power in 2019, President Kassym-Jomart Tokayev initiated some well-organized strategy to realize the dream of economic diversification. Let us have analysis of the same.

President Tokayev seeks to utilize the immense potential dormant in the agricultural sector of Kazakhstan. The National Project on the Agro-Industrial Complex has been launched to develop seven large ecosystems for production of meat, fruits, vegetables, sugar, cereals, oilseeds, and dairy products. The end goal is to attract investment in the sector, double the productivity, provide for domestic food demand, and increase food exports, since Kazakhstan is regarded as  “bread basket” of Central Asia. In his 2019 address to the nation, President Tokayev outlined the following specific goals for agriculture: (1) increase the amount of irrigated land to 3 million hectares by 2030; (2) grow agricultural production 4.5 times in that same time frame; (3) ensure a ban on foreign ownership of Kazakh land; (4) seize land that is inefficiently used; (5) and provide better quality of life for rural populations. Tokayev has also begun to (6) address the issue of agricultural subsidies, and to tackle the fraudulent exploitation of these subsidies. Furthermore, Kazakhstan has inked investment deals with Dutch and American companies to manufacture advanced farm technologies and develop sustainable agriculture. These deals are centered on the exchange of agricultural technologies such as irrigation plants, artificial intelligence and cloud computing.

Currently, the manufacturing sector of Kazakhstan is operating at basic level; therefore import bill is very huge. Hence, the reform efforts towards manufacturing are based on the concept of building an “economy of simple things” – focusing on low tech, household goods. These products can be easily manufactured using the raw materials that are otherwise exported out of the country. Just as with food production, Tokayev aims to fill domestic demand for these goods, thereby decreasing dependence on foreign imports and increasing the share of manufactured goods in Kazakhstan’s exports.

Another strategy known as “Digital Kazakhstan,” is being implemented by the government which seeks to develop a knowledge-based economy where the systems driving private sector and public sector functions are being entirely digitized. Kazakhstan has already invested significantly in an e-government platform that has improved administrative efficiency, decreased administrative costs, and reduced opportunities for corruption in human-to-human interactions. Additionally, the country is looking to invest heavily in technologies like 5G, fiber optics, big data, AI, and smart city technology. President Tokayev aims to promote a culture supporting tech start- ups and entrepreneurship with this digital initiative.

In another move, Kazakhstan is committed to introduce cleaner technologies and accelerating the efforts as the country transitions to a green economy. For this inevitable decarburization, the reorientation of investments in «clean» technologies is being carried out. President Tokayev has targeted to bring the share of renewable energy in the nation’s total energy grid to 15 percent by 2030.

The government has announced National Development Plan (NDP), in March 2021, which identified specific priorities leading up to 2025. Three key priorities included (1) building a diversified and innovative economy; (2) active development of economic and trade diplomacy; (3) and balanced territorial development.” Now under NDP, the overseas embassies and missions of Kazakhstan are actively pursuing an economic and trade diplomacy. For example, Kazakhstan embassy in Islamabad has also mobilized the potential of bilateral trade between Pakistan and Kazakhstan. In Nov-2021, an MOU of joint venture signed among M/S Habib Syndicate, LLP Aktobe Rail and Section Work, LLP Intra Construction and JSC KazakExports for a USD 650 million project to cay out track rehabilitation from Sukkur to Karachi. JSC KazakExports is likely to finance the project with 80% financing for this project on G2G basis. Then, under balanced territorial development initiative, 13 special economic zones are already set up in the country. Now, three new regions namely Ulytau, Zhetysu and Abay are being created to for internal diversification of the economy.

Kazakhstan has almost overcome its inherent landlockedness by serving as global transit hub. Five international railway corridors pass through the territory of Kazakhstan. Around 91 percent of containers were transported in 2020 through the territory of Kazakhstan accounted for the China-Europe-China route- key link in overland transportation between Asia and Europe. Kazakhstan is an important and reliable partner in implementing China’s Belt and Road- transport and logistics services.

Since in economic diversification, there is higher number of stake holders, the political stability is all the more important. Deft handling of January events by President Tokayev’s administration, a principled stance in Ukrainian war and the political reforms aiming devolution of power and a system of checks and balance, evidence on the desired political stability.

Moreover, the demographics of Kazakhstan with over 106 ethnic groups make up melting pot of people, cherishing the values of tolerance & co-existence. It provides congenial atmosphere for economic diversification.

Strategy of economic diversification by President Tokayev is bringing about the desired results. In year 2020, Kazakhstan demonstrated the largest increase of 34.9pc ($3.9 billion) in net foreign direct investment among 17 countries with a transition economy and 34 landlocked countries. Such investing confidence is exceptional keeping in view the decline of 35pc in global investment. Around 60pc of this investment is associated with non-extractive sectors like manufacturing, trade, transportation, financial and insurance services. Rising investment trends in the mining, transport, telecommunications, energy sectors and financial services reflect promising outcome for diversification of the economy. In 2020, crop production increased by 7.8%, livestock production increased by 3%, investments in agriculture increased by 15%, and food production increased by 13.5%.

The writer is a senior banker based in Kazakhstan, with keen interest in Central Asian studies. He can be reached out at rafeeq_kz@yahoo.com.