Would Kazakhstan Join the Group of the World’s Top 50 Competitors?

en.fondsk.ru
Eurasia
25.10.2008

Ale ksandr SHUSTOV

The recent report on global competitiveness in 2008-2009 downgrades
Kazakhstan;s position giving it a slot 6 points lower than in the
previous year. The fact is compelling enough for the researcher to take
another look at the goal the republic’s leadership set in 2006 of
Kazakhstan’s making it to the group of the world’s top 50 most
competitive countries by 20301.

Kazakhstan’s rating as a global competitor has in the last several
years been continuously deteriorating. In 2006-2007 the republic was in
slot 50, in 2007-2008 in slot 61, and in 2008-2009 in slot 66. Sharing
the upper half of the list along with Kazakhstan were Estonia (32),
Lithuania (44) and Russia (51). Placed in the lower half are Azerbaijan
(69), Ukraine (72), Georgia (90), Moldova (95), Armenia (97),
Tajikistan (116) and Kirghizia (122). The ratings were compiled for 133
countries. The Baltic countries and Kazakhstan that initially were in
the upper half of the list have dramatically worsened their positions,
whereas Russia’s last year’s rating of 58 was augmented to the 51st
place2.

Reports on global competitiveness are prepared by the World Economic
Forum (WEF), a Geneva-based independent organisation. The chief gauging
tool is the Index of global competitiveness, exclusively devised for
the WEF by Xavier Sala-i-Martin, a lecturer at the University of
Columbia, which comprises 12 parametres, including `Institute Quality’,
`Infrastructure’, Macroeconomic Stability’, `Public Health and Initial
Education’, `Higher Education and Professional Training’, `Efficiency
of the Goods and Services Markets’, `Efficiency of Labour Market’,
`Degree of Development of Financial Markets’, `Technological Level’,
`Market Size’, `Company Competitiveness’ and `Innovation Potential.’
All the indexes are united in three groups, namely `Basic
Requirements’, `Efficiency Factors’ and `Innovation Factors’ with
ratings of competitiveness calculated for each of the groups. The
ratings are based on official statistics and the results of interviews
with company managers3.

The index of global competitiveness is calculated based on a 7-point
scale. The overall estimate of Kazakhstan’s competitive performance in
2008 stands at 4.1 points. Kazakhstan’s most favourable section is
`Basic Requirements (4.3) and in particular its indices `Macroeconomic
Stability’ (4.9) as well as `Public Health and Primary Education’
(5.3). Aside from that the positive mark was given to ` Efficiency
Factors'(4.1), including `Labour market Efficiency’ (5.0), `Higher
Education and Professional Training’ (4.1), `Efficiency of Goods and
Services Markets’ (4.1) and `Market Size’ (4.1). The weakest elements
of Kazakhstan’s economy are innovations (3.2), the technological level
(3.2), infrastructure development (3.3), and development of
institutions (3.7), financial market (3.8) and the level of company
competitiveness (3.8). These were exactly the indices that
predetermined the decrease of Kazakhstan’s competitiveness compared to
the previous year.

On the whole the rating results reflect the pre-crisis state of
economy. Kazakhstan can be characterized as a country with a stable
macroeconomic situation, rather high human resource potential and
relatively developed consumer market, but with a low infrastructure and
institutional as well as the innovation technological level of
development and an inadequately competitive business. The report
compilers singled out the following factors that hinder the republic’s
economic development: corruption, tax regulation drawbacks, inflation,
the weight of tax burden and availability of financing. These
significantly mar the image of Kazakhstan’s `leopard’ that according to
the ideas of the country’s leaders was in a short period of time to
make a rush in economy and to catch up with the level of development of
such Asian `Tigers’ as Taiwan, Malaysia and South Korea4.

During the last 3 years instead of approaching its target of becoming
one of the top 50 most competitive countries in the world the republic
was steadily moving away from it.

The problems in Kazakhstan’s economy became evident as early as August
of 2007, when in the course of the U.S. mortgage crisis its banks lost
their access to inexpensive western credits that for a long time had
helped Kazakhstan to maintain high rates of economic growth. With
borrowing abroad becoming much more difficult resulted in a liquidity
crisis that did not take long to affect the financial and construction
sectors that were its locomotives of the growth of its GDP. With
average GDP in 2004 ` 2007 amounting to 10%, it was 37.5% in the
financial sector and 44.2% in the construction industry. This
phenomenal growth was financed by western credits that proved to be
less expensive than domestic ones. Starting from mid-2005 through the
early 2007 the volume of Kazakhstan’s banks’ borrowings abroad grew
from $800 million to $4.8 billion5.

When terms of granting western credits became more austere, the banks
were forced to decrease the volumes of financing of construction and
mortgage credits, which led to the slowing down of economic growth
rates. These rates went down to 5.1% in the first 6 months of 2008, or
50% of this index in 2007, when the growth rate was more than 10%6.

At the same time the banking crisis directly negatively affects one of
the chief indices of competitiveness ` macroeconomic stability that
previously was one of the basic advantages Kazakhstan enjoyed.

The second wind of the economic crisis that began in September of 2008
and this time had a global character, can affect Kazakhstan much more
negatively. Even a robust economy as Kazakhstan’s and its considerable
gold and hard currency reserves ($51.5 billion as of October 1, 2008)7,
the probability of further enhancement of the critical processes
remains rather high. According to analysts, the key role here could be
played by two major factors, the falling world oil prices whose
revenues had always been the collateral for the Kazakhstan authorities
to draw credits, and a poor grain crop that can result in shortages of
food stuffs. According to The Daily Telegraph , the chances of
Kazakhstan’s default, which similar to Iceland can seek a major credit
in Russia are about 70%8.

The crisis has already affected the outline of mid-term goals of the
government that according to president N.A.Nazarbayev should in
2009-2010 be `ensuring macroeconomic stability, social wealth and
modernisation of economy’9, as well as ensuring protection of revenues
and savings of the population.

The goal of becoming one of the top50 biggest competitor nations by
2030 is not yet on the agenda. In the conditions of the global
financial crisis whose scope is expected to be bigger than the Great
Depression of the 1930s Kazakhstan would rather address the issue of
economic survival rather than achieving important , but not at all
critical for most of the population, indices.

____________________
1 The Strategy of Kazakhstan’s Entry in the Number of the World’s Top
50 Most Competitive Countries. The Address of President of the Republic
of Kazakhstan N.A .Nazarbayev to the people of Kazakhstan. March,
2006.//Ak Orda. The official site of the president of the Republic of
Kazakhstan /
ww_akorda_kz.nsf/sections?OpenForm&id_doc=5D4 D3D423A0AB331462572340019E62
7&lang=ru&L1= L2&L2=L2-22

2 The Global Competitiveness Report 2008-2009. World Economic Forum.
2008 /
_Reports/Reports/gcr_2007/gcr2007_rankings.pdf

3 USA, Switzerland, Denmark and Sweden top the list of the rating of
the World Economic Forum (the index of the global competitiveness.)
World Economic Forum. Ð?ÑеÑ?Ñ?-Ñ&#xD 0;µÐ»Ð¸Ð·. 2007. 31 окÑ?.
//

4 See: Nazarbayev N.A. Independence Strategy. Almaty, 2003. Pp.21-23

5 The Economics of Kazakhstan. A New Turn, Again! // International
Business Magazine KAZAKHSTAN. 2007. ?-4/

6 The GDP growth rates in Kazakhstan in the first 6 months amounted to
5.1% //Kazakhstan Today. Information Agency. 2008, July14. Kazakhstan’s
GDP growth rates went down by 50% in the first 6 months of the year.//
Ð?енÑ?Ð&#xB0 ;.ÑÑ?.2008. July 14. Quoted from:
NOMAD/

7 The speech of n.A.Nazarbayev, president of the Republic of Kazakhstan
at the extebded session of the government of the Republic of Kazakhstan
October 13, 2008. // AkOrda. The official site of the president of the
republic of Kazakhstan.
ns?OpenForm&id_doc=
A84F842492C1401C062574E1007CCEBB&lang=ru& L1=L2&L2=L2-15

8 Quoted from: I.Tsaregorodtseva. The Crisis Will Bring Russia Closer
to the CIS. Kazakhstan and Ukraine are Next on the List // RBC
Daily.Oct.15, 2008. ок/ 08/10/15/focus/385623

9 The speech of President of the RK N.A.Nazarbayev at the plenary
session of the government of the Republic of Kazakhstan, October 13,
2008// AkOrda. The official site of the president of the Republic of
Kazakhstan /
ns?OpenForm&id_doc=
A84F842492C1401C062574E1007CCEBB&lang=ru& L1=L2&L2=L2-15