Competitiveness and Private Sector Development

2076-5762 (en ligne)
2076-5754 (imprimé)
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This series of publications addresses different aspects of private sector development in non-OECD regions, including Latin America and the Caribbean, the Middle East and North Africa, Southeast Asia, South East Europe and Eurasia. Reports provide recommendations at the national, regional and sector level to support countries in improving their investment climate, enhancing competitiveness and entrepreneurship, raising living standards and alleviating poverty.

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Competitiveness and Private Sector Development: Kazakhstan 2010

Competitiveness and Private Sector Development: Kazakhstan 2010

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06 mai 2011
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9789264089792 (PDF) ;9789264089785(imprimé)

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Since 2000, the economy of the Republic of Kazakhstan has been growing at an annual rate of between 8%-9%, making it one of the ten highest performing economies in the world. Kazakhstan alone attracts more foreign direct investment than all other Central Asian countries together. To date, the country’s strong economic performance has been driven largely by its natural resources sector. The oil and gas sectors alone attract three quarters of foreign investment inflows. However, Kazakhstan’s non-energy sectors also have competitive advantages that could be potential new sources for growth.

In 2009 Kazakhstan launched a far-reaching programme to diversify its sources of foreign direct investment. To support this effort, it asked the OECD to undertake a three-year Sector Competitiveness Review. This report represents the first phase of this Review, which is an assessment and strategy to help Kazakhstan enhance the competitiveness of non-energy sectors including agribusiness, fertilizers, logistics, business services and information technology. While it acknowledges that the government has successfully implemented a first generation of business climate reforms, the report recommends that sector-specific policy barriers be further addressed. For example, policy makers could stimulate quality improvements and modernise production in some sectors by facilitating access to finance, attracting modern retailers and addressing skills gaps in the  workforce.

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  • Foreword
    The long-term economic goal of the Republic of Kazakhstan is to support a balanced and diversified economy. Economic and foreign direct investment (FDI) diversification will help provide sustainable growth and ultimately improve the living standards of the people of Kazakhstan.
  • Acknowledgments
    This report is the outcome of work conducted by the OECD Eurasia Competitiveness Programme under the authority of the Central Asia Initiative Steering Committee (referred to in this publication as the "OECD Secretariat" when policy recommendations are formulated), in consultation with the Government of the Republic of Kazakhstan and participation of the private sector in Kazakhstan.
  • Abbreviations
  • Executive Summary
    The Republic of Kazakhstan is the world’s largest land-locked country, with a territory of 2 725 thousand square kilometres – larger than Western Europe. Since the country declared its independence in December 1991, it has emerged as a key economy in Central Asia. Since 2000, per capita income doubled,1 the unemployment rate has been halved, and close to USD 30 billion of foreign exchange reserves have been accumulated by the National Bank of Kazakhstan (NBK) and the National Fund. From 2000 to 2008, the economy of the Republic of Kazakhstan (real GDP) grew at an average annual rate of over 9%, among the ten highest rates in the world. Despite a drop in 2009, real GDP was growing at 8% year-on-year, as recorded in the first quarter of 2010. However, despite this strong economic performance, several challenges have emerged.
  • Introduction
    Launched in July 2008, the OECD Eurasia Competitiveness Programme is a regional programme that contributes to the economic growth in eleven countries of the former Soviet Union and Afghanistan and Mongolia. The Programme involves close co-operation with public authorities, the private sector and civil society in these countries to support economic policy reforms and improve the business climate. It generates impact through an integrated framework based on two pillars: regional policy dialogue, peer dialogue and capacity building; and country-specific support in implementation at the regional, national and sub-national level. The regional approach allows countries to engage their peers in working to design and implement successful policies and institutions. Both pillars incorporate a sector-specific approach. As part of the Central Asia Initiative of the Eurasia Competitiveness Programme, a sector competitiveness review was initiated for the Republic of Kazakhstan to help diversify its sources of foreign direct investment and strengthen sector competitiveness. This project was designed to follow a three-phased approach over three years (2009-11): first by developing a sector competitiveness strategy (Phase 1), then by implementing specific aspects of the recommended policy reforms (Phase 2) and finally by assist in embedding mechanisms for sustainable reform (Phase 3). The objective of Phase 1 of the project, co-financed by the Republic of Kazakhstan in collaboration with the EU, is to support the country in defining a targeted competitiveness and investment promotion agenda.
  • Approach, Methodology and Research
    The methodology used in this study focuses on strategic co-ordination between governments and firms. Its main characteristics are vertical: addressing policy barriers from a sector and value-chain perspective; capability-based: targeting sectors to generate high spillover and to enhance capabilities; and demand-driven: leveraging feedback from foreign investors and the local private sector on their priorities. The tools and frameworks used include a vertical approach to policy reform, including the Sector Prioritisation Framework; a review of OECD best practices related to diversification; an evaluation of the Single Commodity Transfer; and primary research.
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    • Agribusiness
      Several global trends are impacting the agribusiness value chain including increasing globalisation, increased competition and pressures to increase efficiency, growing co-operation and concentration further down the value chain. Standards and food safety and changing food consumption patterns and preferences are also increasingly important. Among Kazakhstan’s constraints to agribusiness development are its fragmentation, limited financial resources and the need to improve quality. The lack of modern technologies and know-how among farmers are also critical. The initial focus for improving the agribusiness sector in Kazakhstan should be on attracting foreign investors, especially by promoting modern retail development, on improving access to and availability of financing for agribusinesses (through mechanisms such as supply-chain financing), and on enhancing investment policy and promotion.
    • Grains Sector
      Grains consist of coarse grains (barley, oats, sorghum, maize and rye), wheat and rice. Wheat is by far the most cultivated grain in Kazakhstan, and was thus chosen as the area of focus for the project. The global wheat trade has grown by 1.5% per year on average over the past 10-15 years and world imports are increasingly dominated by less-developed countries. Growing competition among grain exporters is intensified by competition from non-traditional exporters, among them Kazakhstan. Exporters are exploring non-traditional markets and moving up the value chain to mitigate their fluctuating ocean freight costs. Although Kazakhstan is among the five largest wheat exporters in the world and has a significant advantage in its production costs, it faces a number of challenges. Its main policy barrier is the agricultural sector’s lack of access to finance. Recommendations include supply chain financing and attracting foreign retailers. Kazakhstan has a considerable opportunity to promote its brand of wheat and for greater deep processing of wheat end products.
    • Meat Sector
      The global trade in meat has increased by an average of over 7% annually over the past three decades, and global meat consumption is forecast to grow by 15% in the 2010-19 period. Kazakhstan’s beef sector is supported by its comparative advantages of low labour and land costs, low processing costs and access to premium markets such as Russia. Its challenges include a very low cattle inventory, the absence of an active marketing institution for Kazakhstan’s beef and a lack of affordable financing to grow the sector. Policy options include promotion of modern retail and access to finance schemes to promote investment in the sector and upgrading the standards of beef products. Kazakhstan’s exports should focus on the growing markets of Russia, Central Asia and the Middle East and the beef sector should move up the value chain, coupled with promotion of better quality standards, the development of producers’ organisations and extension programmes.
    • Dairy Sector
      Milk consumption has almost doubled in developing countries in the last 45 years and developing economies will become the main sources of growth for the global dairy sector. Kazakhstan’s dairy sector faces a number of challenges: the quantity of dairy cattle has declined, productivity is very low and the quality of raw milk is poor. Kazakhstan’s domestic market currently depends on milk imports for its dairy sector. In order for Kazakhstan to increase domestic production of dairy products, focus should be on access to finance schemes for milk producers, especially supply chain financing, further development of producer organisations and extension services to promote investment and upgrading standards of milk products. Kazakhstan should concentrate on its domestic market but in the longer run could position itself as a producer of higher value-added dairy products like milk powder.
    • Chemicals Sector
      Kazakhstan’s mineral fertilisers sector can boost its competitiveness by building on existing production capabilities, locally available raw materials and low production and transportation costs to supply domestic and regional markets. Poor quality and price competition are the most significant barriers for export of mineral fertilisers. Outdated technologies, low levels of investment, and low quality of products, as well as a lack of know-how on how to use mineral fertilisers are among domestic challenges. Limited financial support from the government to farmers also contributes to lower consumption of mineral fertilisers in the country. Recommendations include leveraging domestic demand and attracting foreign technologies and know-how, as well as a sector-specific promotion and facilitation strategy to spark the inflow of FDI and to introduce modern low-cost production technologies. Growing domestic demand should be considered a priority, as well as increasing know-how and economic power to purchase and use fertilisers.
    • Logistics for Agribusiness
      The global transport and logistics sector, largely influenced by general business conditions and economic activity, underwent significant growth in recent decades. At the same time, the sector experienced a decline in demand and intensifying cost competition as a result of the recent economic downturn and subsequent decreases in volumes of international trade. Kazakhstan’s transportation sector faces key challenges because it has not been modernised sufficiently. This includes physical infrastructure and transport facilities, institutional policies and regulations as well as operations capability and logistics. However, Kazakhstan has an opportunity to turn its transport and logistics sector into a vehicle of economic diversification and competitiveness.
    • Information Technology and Business Services Sectors
      Although there is incomplete statistical data for estimating the impact of information technology (IT), outsourcing and business services have strong potential. Kazakhstan is well positioned to respond to its growing local demand and regional opportunities due to its low labour costs, language skills and proximity to Central Asian countries, which could use Kazakhstan as a platform for their own IT and business services. The skills of its user interface, designers and developers are sufficient but Kazakhstan’s IT sector lacks soft skills and formal qualifications are also a major gap. There is little IT innovation and IT graduates cover only 40% of Kazakhstan’s demand. A lack of public-private dialogue on the competencies required by the market as well as operational constraints such as administrative barriers, slow speed of liberalisation and taxation of foreign training firms are additional challenges. The human capital gap could be addressed through linkage programmes with multinational companies, particularly in the oil and gas sectors, healthcare, media, retail and telecommunications
    • The classification of Kazakhstan industries by sectors
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  • Sector Competitiveness Strategy Recommendations and Road Map
    The Sector Prioritisation Framework has identified a number of sectors within Kazakhstan’s economy for further analysis: agribusiness, logistics and chemicals for agribusiness and IT/business services. Both sector-specific and economy-wide barriers can be addressed through policy measures such as investment policy, enhanced investment promotion capabilities and human capital development. The report recommends that the Government of Kazakhstan implements the OECD Investment Policy Review, while other policies will require collaboration between government and the private sector. Investment promotion capabilities include measures such as a unified national investment promotion organisation, sectorfocused FDI promotion strategies, a network approach, an increased role of ministers and filling information gaps for investors. Sector-specific recommendations address specific policy barriers across the targeted sectors and focus is to be placed on these sector-specific strategies: development of modern retail, access to finance and investment policy and promotion. Within the IT sector, the government should enhance public-private policy dialogue, build business linkages, develop a supplier database and improve IT infrastructure.
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