What’s Wrong With State Capitalism in Kazakhstan?

In Kazakhstan, the largest economic sectors, generating the country’s main financial flows, are fully controlled by the state, foreign companies and elite-affiliated businessmen. Others “admission” is given to less privileged sectors with a high level of competition, low and medium margins, and no opportunity to generate the kind of financial flows seen in the past. resource sector for ordinary entrepreneurs, partially or totally, the doors to sectors such as construction, real estate, transport, logistics, commerce, etc. they are open. This happens for a reason. But first, we have to deal with the numbers.

According to the deloitte research center the following sectors account for 76 percent of national GDP: mining and processing (including oil, gas, and metals), 29 percent; trade, 16 percent; banking and real estate, 12 percent; transportation and communications, 11 percent; construction, 6 percent; and energy, 2 percent. In addition, according to various experts, companies operating in these sectors represent between 80 and 90 percent of assets used in the economy. In each of the aforementioned sectors, except trade, transportation and construction, there are mainly foreign companies, state-owned companies or business entities associated with the elites. Access to these sectors by independent national companies, not affiliated with elites, is difficult due to various entry restrictions. At the same time, according to some experts, the presence of the State in companies is between 40 percent and 50 percentbut there is no official data on the size of state (including quasi-state) presence in Kazakhstan’s GDP.

According to the comprehensive privatization plan that the government prepared in 2015, the share of the public sector in Kazakhstan should have been brought to 15 percent of GDP by 2020, or equal to the average of OECD countries. But if we look at the leading quasi-state enterprises, which are represented by financial and investment organizations, mega holdings uniting diversified businesses (JSC Samruk-Kazyna, JSC Zerde, JSC Baiterek, JSC KazAgro, etc.), we see that today, by assets , these institutions occupy more than 60 percent of the country’s economy, and its contribution to GDP is about 50 percent.

As the economist V. Dodonov mentioned in the article “Investment activity of leading countries in Kazakhstan, the total amount of state assets of Kazakhstan, including the combined 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 state-owned enterprises Samku-Kazan, Baiterek, KazAgro, and Zerde, is almost equal to the size of GDP. A similar indicator in countries like the UK, Germany and Denmark is around 5 percent. .

According to the calculations of the Kazakh School of Applied Policy and Economic Research (KSAP)made on the basis of open source data, the number of people receiving salaries from the state budget is about 1.44 million . If we add to this figure 300,000 employees of the quasi-state sector (about 500 companies), we conclude that the State “feeds” 1.7 million people. In total, between 6 and 7 billion tenge are spent annually on their maintenance (everything from salaries and benefits to buildings and other costs), which is equivalent to half of the national budget or 10 percent. of the country’s GDP.

Do you enjoy this article? Click here to subscribe and get full access. Only $5 a month.

So we have two main questions. First: Why does the state accumulate such a large amount of assets and, opposing privatization, feed a whole army of officials, state employees and managers? Second: Why are independent Kazakh companies not allowed in the “privileged” sectors of the economy?

it is not difficult to answer The first question. At the expense of state ownership, the government creates a large number of unproductive jobs (including some very well paid and attractive, given the possibility of taking bribes in such positions).). This is done both to maintain social stability and to coordinate an important social stratum (the elite).. Practice shows that the 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 of co-opting the elite (relatives, friends, fellow tribesmen, friends of friends, etc.) is the distribution of well-paid administrative positions. With the state having such a strong presence in the economy, it is much easier to do this.

Furthermore, in the case of Kazakhstan, it is the “post-Soviet syndrome”. men the past, the party, and today the ruling elite of a sovereign state, he feels political and psychological comfort in the presence of state ownership.

The second question is more difficult to answer. Kazakhstan has been in a stage of technological stagnation for 20 years. the country is do not generate new technologies; it is there is no increase in the share of the manufacturing industry, and there is practically no natural vertical transformation of business, when small companies grow to medium and then to large ones. According to the World Bank, the potential for increased productivity and economic growth in Kazakhstan is limited by the predominant role of the state in the economy through quasi-state-owned enterprises. The state is not known to be the best landlord; it is good for creating jobs but bad for creating added value.

But, at the same time, the main internal constraint to the economic and technological development of the Kazakhstan economy is a problem of access: the lack of access to the “privileged” sectors of the economy for those who are not part of the elites. Equitable and fair access to these sectors would provide a more equitable redistribution of income in society, creating a good reserve for the development of the middle class and technologies, improving the investment climate and entrepreneurial activity of the population. Partially, or even completely, this problem could be solved by large-scale privatization of state property and national holdings. But with a 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 previous waves of privatization in the 1990s, after the collapse of the Soviet Union. Without him systemic reform of these structures, there is no point in carrying out a major privatization.

Through the Strategy for Industrial and Innovative Development in the early 2000s, the Kazakh government was actively involved in technology development. But at some point, the elite decided that technological development was risky, since it could lead to the generation of profits beyond state or elite control, which in the future could become an independent political force. Therefore, the fear of the side The effects of technological development pushed the elite to take control of capital and technology, in addition to restricting access to certain sectors of the economy.. As a result, the economic model, or “rules of the game” that the elite established in Kazakhstan, blocked the technological development of the country and led to a permanent reduction of the investment climate and the entrepreneurial activity of the population. As a result, citizens’ economic rights have been curtailed along with political rights, and property rights are poorly protected.

The main problem of the current government is that it wants to preserve the established “status quo”, which is why fundamental institutional problems are not being resolved today. The authorities are in no hurry to make the work of public services transparent, introduce political pluralism and multi-party democracy, and create independent and effective courts and a fair and incorruptible law enforcement system. The motivation is clear: the activities of such inclusive institutions will inevitably increase 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 authoritarian power. . But the problem is that the chosen model, as history (including the former Soviet Union) has shown, has limited and unsustainable growth associated with the inevitable appearance of technological stagnation and subsequent collapse.

If Kazakhstan wants long-term economic growth, it needs checks and balances. Kazakhstan needs a long-term horizon. It needs an open electoral process, an independent Parliament and National Bank, and fair and independent courts. Both national and foreign investors must understand that there are stable laws in the country, 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 businesses it will not be removed tomorrow by officials or competitors. And, of course, that equal and fair opportunities are important, in all sectors of the economy, without exception or discrimination.

Source link

Leave a Reply

Your email address will not be published.