What is wrong with state capitalism in Kazakhstan? – Diplomat

In Kazakhstan, the largest sectors of the economy that generate the main financial flows in the country are fully controlled by the state, foreign companies and businessmen affiliated with the elite. Other get “admission” to less privileged industries with a high level of competition, low and medium margins and the lack of the ability to generate financial flows, observed in resource sector. For ordinary entrepreneurs wholly or partly gates in industries such as construction, real estate, transport, logistics, trade, etc. even open It happens for a reason. But first we need to deal with the numbers.

According to Deloitte Research Center the following industries account for 76 percent national GDP: extraction and processing (including oil, gas and metals) – 29 percent; trade, 16 percent; banking and real estate, 12 percent; transport and communications – 11 percent; construction, 6 percent; and energy, 2 percent. In addition, according to a number of experts, companies operating in these sectors account for 80 to 90 per cent of assets used in the economy. In each of the above sectors, except for trade, transport and construction, there are mainly foreign companies, state-owned companies or commercial structures associated with elites. Access to these sectors for independent, non-elitist domestic enterprises is difficult due to various entry restrictions. At the same time, according to some experts, the presence of the state in business is from 40 percent and 50 percentbut there is no official data on the size of the state (including quasi-state) presence in Kazakhstan’s GDP.

According to comprehensive privatization plan what the government was preparing in 2015, the share of the public sector in Kazakhstan was to be increased to 15 percent GDP by 2020, or equal to the OECD average. But if we look at the main quasi-state enterprises, which are represented by financial and investment organizations, mega-holdings that unite a diversified business (Samruk-Kazyna JSC, Zerde JSC, Baiterek JSC, KazAgro JSC, etc.), we will see that today, in terms of assets, these institutions occupy more than 60 percent economy of the country, and their contribution to GDP is about 50 percent.

As the economist V. Dodonov noted in the article “Investment activity of leading countries in Kazakhstan, the total amount of state assets of Kazakhstan, including the total international reserves of the National Fund and the National Bank (about $80 billion, or about 45 percent of GDP), as well as the assets of the state holdings Samku-Kazan, Baiterek, KazAgro and Zerde, are almost equal to the size of GDP. The similar figure in countries such as the UK, Germany and Denmark is about 5 percent. .

According to the calculations of the Kazakhstan School of Applied Political and Economic Research (KSAP)based on open source According to the data, the number of people receiving wages from the state budget is about 1.44 million. . If we add to this figure 300,000 employees of the quasi-public sector (about 500 companies), then we come to the conclusion that the state “feeds” 1.7 million people.. In total, about 6-7 trillion tenge is spent annually on their maintenance (everything from salaries and benefits to buildings and other expenses), which is equal to half the republican budget, or 10 percent. country’s GDP.

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So we have two main questions. First, why does the state accumulate so many assets and, while opposing privatization, feed a whole army of civil servants, state employees and managers? Second: why is independent Kazakhstani business not admitted to the “privileged” sectors of the economy?

Not hard to answer first question. At the expense of state property, the state creates a huge number of unproductive jobs (including highly paid and attractive ones, given the possibility of taking bribes in such positions). This is done both to maintain social stability and to coordinate an important social stratum (elite). Practice shows that people who benefit from the state, for the most part, retain their loyalty to the current regime during periods of political instability. At the same time, one of the methods for co-opting the elite (relatives, friends, fellow tribesmen, friends of friends, etc.) is the distribution of well-paid, administrative positions. With such a strong state presence in the economy, make it much easier.

In addition, in the case of Kazakhstan, this is a “post-Soviet syndrome”. Iin the past a party, and today the ruling elite of a sovereign state, feels political and psychological comfort from the presence of state property.

The second question is more difficult to answer. Kazakhstan has been in the stage of technological stagnation for 20 years. Country do not generate new technologies; this is the share of the manufacturing industry is not increasing, there is practically no natural, vertical transformation of business – when a small business grows to a medium one, and then to a large one. According to the World Bank, the potential for productivity and economic growth in Kazakhstan is limited by the dominant role of the state in the economy through quasi-state companies. It is known that the state is not the best owner; this is good for job creation, but bad for value creation.

But at the same time, the main internal constraint on the economic and technological development of the Kazakhstani economy is the problem of access – the lack of access to “privileged” sectors of the economy for non-elites. Equal and fair access to these industries would ensure a more equitable redistribution of income in society, creating a good foundation for the development of the middle class and technology, improving the investment climate and business activity of the population. Partially, or even completely, this issue can be solved by large-scale privatization of state property and national holdings. But given the high level of corruption, the imperfection of the judicial and legal system, and the lack of transparency in the work of the civil service, there is a high risk of repeating the mistakes of the earlier waves of privatization in the 1990s, after the collapse of the Soviet Union. Without systematic reform of these structures, it is pointless to carry out large-scale privatization.

Through the Strategy of Industrial and Innovative Development in the early 2000s, the government of Kazakhstan was actively engaged in the development of technologies. But at some point, the elite decided that technological development is risky, as it can lead to profits outside the control of the state or the elite, which in the future may become an independent political force. So the fear side the consequences of technological development prompted the elite to take control of capital and technology, and to restrict access to certain sectors of the economy.. As a result, the economic model, or “rules of the game” set by the elite, in Kazakhstan driven into a dead end technological development of the country and led to a permanent decline in the investment climate and business activity of the population. As a result, citizens’ economic rights have been narrowed along with political rights, and property rights are weakly protected.

The main problem of the current government is that it wants to maintain the existing “status quo”, so fundamental institutional problems are not being solved today. The authorities are in no hurry to make the work of public services transparent, to introduce political pluralism and multi-party democracy, to create independent and efficient courts, a fair and incorruptible law enforcement system. The motivation is clear: the activities of such inclusive institutions will inevitably increase the demands on the state apparatus, create high costs for corrupt officials at all levels, and most importantly, lead to the inevitable rejection of one-man management, authoritarian power. But the problem is that the chosen model, as shown by history (including the late USSR), has a limited and unstable growth associated with the inevitable onset of technological stagnation and subsequent collapse.

If Kazakhstan wants long-term economic growth, it needs limits and balances. Kazakhstan needs a long-term horizon. We need an open electoral process, an independent parliament and the National Bank, fair and independent courts. Both domestic and foreign investors should understand that the country has stable laws, that taxes are not reviewed every day, that the decisions of the National Bank are independent, that there is a competitive policy, that there are independent courts, that officials or competitors will not take away business tomorrow. And, of course, equal and fair opportunities in all sectors of the economy, without exceptions and discrimination, are important.