Kazakhstan: Accelerating Economic Diversification

235 Pages·2017·6.39 MB·English

by  Asian Development Bank

KAZAKHSTAN
ACCELERATING ECONOMIC
DIVERSIFICATION
Edited by Kym Anderson, Giovanni Capannelli,
Edimon Ginting, and Kiyoshi Taniguchi
AUGUST 2018
ASIAN DEVELOPMENT BANK

KAZAKHSTAN
ACCELERATING ECONOMIC
DIVERSIFICATION
Edited by Kym Anderson, Giovanni Capannelli,
Edimon Ginting, and Kiyoshi Taniguchi
AUGUST 2018
Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)
© 2018 Asian Development Bank
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Some rights reserved. Published in 2018.
ISBN 978-92-9261-262-7 (print), 978-92-9261-263-4 (electronic)
Publication Stock No. TCS189413-2
DOI: http://dx.doi.org/10.22617/TCS189413-2
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Cover photos: Top (clockwise from left): Workers carefully select the quality of apples before
being juiced in a plant just outside the city of Almaty (photo by Ariel Javellana); Adoption of
digital technologies in Industries (photo by Andrey Terekhov); Aktau port is Kazakhstan’s main
seaport on the Caspian Sea (photo by Igor Burgandinov); Buildings being constructed in Astana,
Kazakhstan (photo by Ariel Javellana); Bottom (from left to right): Grain terminal ‘AkBidai’ is one of
the three dry terminals in the Aktau port (photo by Igor Burgandinov); and Almaty company install a
culvert in south Kazakhstan oblast (photo by Igor Burgandinov)
Printed on recycled paper
iii
Contents
Tables, Figures, and Boxes v
Preface ix
Acknowledgments xii
Author Profiles xiv
Abbreviations xix
Map and Fast Facts xx
1. The Kazakhstan Economy: Achievements, Prospects, and 1
Policy Challenges
1.1 Growth, Inequality, and Environmental Dynamics 3
1.2 The National Wealth Fund 4
1.3 Real Exchange Rate Movements and the Inflation Target 5
1.4 The Dutch Disease 7
1.5 Diversification of the Economy 8
1.6 Transcending the Middle-Income Challenge 12
1.7 Country Diagnostic Study for Kazakhstan 13
References 19
2. Policies to Unlock Kazakhstan’s Agricultural Potential 21
2.1 Kazakhstan’s Policy Framework for Agriculture 22
2.2 Kazakhstan’s Agricultural Performance 27
2.3 Kazakhstan’s Agricultural Development Challenges 33
2.4 Policy Options to Unlock Agricultural Potential 51
2.5 Conclusions 63
References 65
Appendix 1: Methods for Measuring Technical Efficiency of Agricultural 71
Producers in Kazakhstan using Stochastic Frontier Production Functions
for Panel Data
Appendix 2: Summary Statistics of Variables Used in 72
Technical Efficiency Analysis
3. Kazakhstan’s Manufacturing Potential 73
3.1 Kazakhstan’s Industrial Programs: An Overview 74
3.2 Kazakhstan’s Manufacturing Sector 79
3.3 Why Does Kazakhstan Need to Diversify Its Economy? 82
3.4 Potential Benefits of Diversification 84
3.5 Kazakhstan’s Performance in Diversifying Its Manufacturing Sector, 88
1995–2015
3.6 Product Space Analysis 94
iv Contents
3.7 Identifying High-Potential Export Products in Kazakhstan 98
3.8 Elements of Successful Manufacturing Development: Lessons 104
and Insights from Other Countries
3.9 Policy Priorities for Manufacturing Development in Kazakhstan 109
References 113
Appendix 1: Kazakhstan’s Exported Goods with Revealed Comparative 115
Advantage > 1, in 2015
Appendix 2: Detailed List of Unexploited Products for Kazakhstan Using 117
Product Space Analysis, Based on Distance from Current Capabilities
(2015 data)
4. Oil-and-Gas Services in Kazakhstan 122
4.1 Background 124
4.2 The Oil-and-Gas Value Chain and the Role of Oilfield Services 127
4.3 Oilfield Services in Kazakhstan 128
4.4 Official Data on the Oilfield Services Market 131
4.5 Local Content Policies in the Post-World Trade Organization Context 133
4.6 Research and Development in the Oil-and-Gas Sector 135
4.4 Policy Recommendations 138
References 141
5. Transport and Logistics Infrastructure in Kazakhstan 142
5.1 Globalization Trends 143
5.2 Relevance of Globalization Trends for Kazakhstan 149
5.3 Spillovers from the Transport and Logistics Sector to the Rest of 159
the Economy
5.4 A Framework for a New Economic Policy 163
5.5 Conclusions 166
References 168
6. Key Structural Reforms in selected Sectors: Assessing Their Impact on 172
Economic Diversification
6.1 Medium- and Long-term Growth Challenges 173
6.2 Selected Structural Reforms to Support Economic Diversification 175
6.3 Modeling Methodology 182
6.4 Model Simulation Results 189
6.5 Concluding Remarks 197
References 199
Appendix 1: Theoretical Structure and Model Equations 203
Appendix 2: Sector Classification and Mapping for Aggregated Industries 205
Appendix 3: Industry Shares in National Gross Domestic Product 207
Appendix 4: Model Simulation Results 209
v
Tables, Figures, and Boxes
Tables
2.1 Objectives and Expenditures of the State Program for the 25
Development of the Agro-Industrial Complex, 2017–2021
2.2 Number of Operating Farms by Type, 1990–2013 35
2.3 Estimated Stochastic Frontier Production Function for 38
Spring Bread Wheat
2.4 Technical Efficiency of Enterprise and Individual Farm Production 38
of Spring Wheat
2.5 Estimated Stochastic Frontier Production Function for Beef Cattle 39
2.6 Technical Efficiency of Enterprise and Individual Farm Production 39
of Beef Cattle
2.7 Extent of Crop Irrigation in Kazakhstan 43
3.1 Kazakhstan’s Sector Production Trends, 1990–2007 75
3.2 Kazakhstan’s Top 10 Goods Export Partners 89
3.3 Kazakhstan’s Top 15 Exports by Nominal Increase, 2000–2015 90
3.4 Kazakhstan’s Top 15 Exports by Nominal Decrease, 2000–2015 91
3.5 Composition of Exports with Comparative Advantage, 1995–2015 91
3.6 Option 1—List of Unexploited Products, 2015 99
(1.5 standard deviations below mean distance)
3.7 Option 2—List of Unexploited Products, 2015 101
(1.0 standard deviation below mean distance)
3.8 Option 3—List of Unexploited Products, 2015 102
(0.5 standard deviation below mean distance)
3.9 Industrial Policy Phases in the Republic of Korea 105
4.1 Subnational Government Budget Withdrawals and Payments, 126
2012–2016
4.2 Oilfield Services Sales and Local Content Shares 129
4.3 Value of Services Purchased by the Oil-and-Gas Sector, 2004–2015 132
4.4 Share of Services in Intermediate Inputs Purchased 132
by the Oil-and-Gas Sector
4.5 Major Expenditure Categories of Auxiliary Mining Services, 2004–2015 133
5.1 World Trade Organization Members since 1996 146
5.2 Applied Most-Favored Nation Tariffs 147
5.3 Fraction of Imports of Intermediates in Total Gross Exports 150
5.4 Clearance of Exports and Imports in Selected Countries, 2013 157
5.5 Logistics Performance Index and Quality of Port Infrastructure 158
in Selected Countries, 2016
vvii Tables, Figures, and Boxes
5.6 Infrastructure Score Index of Logistics Performance Index of Kazakhstan 158
and Neighboring Countries
5.7 Fixed Effects Estimation of Firm Production—Full Sample 161
5.8 Productivity Spillovers—Firm-Level Results 162
6.1 Structure of Aggregated Industries in 2015 186
6.2 Sales Structure of Aggregated Industries in 2015 187
6.3 Structure of the Kazakhstan Economy, 2015 and 2030 190
6.4 Macroeconomic Impacts of the Policy Reforms by 2030 193
6.5 Impacts of the Policy Reforms on Export Diversification 195
6.6 Contributions of the Policy Reforms 197
to Reducing Regional Income Disparities
A2 Sector Classification and Mapping for Aggregated Industries 205
A3 Industry Shares in National Gross Domestic Product 207
A4.1 Macro Results: Baseline Simulation with World Bank Projected Oil Price 209
A4.2 Baseline with Constant Oil Price 209

Figures
1.1 Per Capita Gross National Income and Oil Rent 3
1.2 Nominal Gross Domestic Product and Assets of the NFRK 5
1.3 Real Effective Exchange Rate and the Base Rate 6
1.4 Year-on-Year Consumer Price Index Inflation Rate 7
1.5 Real Prices in International Markets for Primary Products, 1980–2020 9
1.6 The Herfindahl–Hirschman Index of Export Diversification 10
1.7 Oil-and-Gas Production, Kazakhstan, 2000–2016 10
1.8 Foreign Direct Investment by Sectors 11
1.9 Foreign Direct Investment Share by Selected Sectors 11
1.10 The Sectoral Value Shares 12
1.11 The Employment Share 12
1.12 Innovation Intensity in Middle-Income Economies 13
2.1 Available Arable Land per Rural Inhabitant, Selected Countries, 2014 21
2.2 Kazakhstan’s Producer Support Estimate, 2000–2015 23
2.3 Annual Planned Expenditures of the State Program for the 26
Development of the Agro-Industrial Complex, 2017–2021
2.4 Balance of Trade in Food Products, Kazakhstan, 2002–2016 28
2.5 Evolution of Agricultural Output in Real Monetary Terms, 1992–2016 29
2.6 Area Planted with Agricultural Crops, 1990–2016 30
2.7 Composition of Agricultural Production Value, 2014 31
2.8 Coefficient of Variation in Annual Wheat Production, 2005–2014 31
2.9 Actual and Agro-Ecologically Attainable Yields for Wheat in 31
Selected Countries
2.10 Yields of Various Crops in 2014, Selected Countries 32
2.11 Production of Principal Livestock Products, 1990–2016 33
2.12 Agricultural Land Use by Farm Type, 1990–2014 35
2.13 Shares of Different Farm Types in Total Production, 2016 35
Tables, Figures, and Boxes vviiii
2.14 Number of Cattle by Farm Type in Kazakhstan 36
2.15 Shares of Fertilizer Subsidies and Crop Value by Farm Type, 2014 37
2.16 Annual Variation in Total Rainfall, 1991–2015 40
2.17 Share of Irrigation Potential Utilized in Kazakhstan 41
and Selected Peer Countries
2.18 Public Investments in Irrigation, 2000–2015 41
2.19 Fertilizer Use on Cropland in Kazakhstan, the Russian Federation, 44
and Ukraine, 2014
2.20 Adoption of Conservation Agriculture in the Northern Grain Region 45
2.21 Livestock Density in Selected Countries, 2014 46
2.22 Problems with Communal Grazing Land by Type of User 47
2.23 Road Density per 1,000 Square Kilometers of Land Area, 49
Selected Asian Countries, 2011
2.24 Value Chains of Beef and Dairy Production in Kazakhstan 50
2.25 Portfolio of Subsidized Credit Provided by ACC and KAF, 2010-2016 55
2.26 Share of Agricultural Production Value Spent on Agricultural Research, 57
2005–2015
2.27 Farmers per Extension Agent, Selected Countries 58
2.28 Number of Cooperative Memberships per Farmer in Selected Countries 60
3.1 Value Added by Sector, 2000–2015 79
3.2 Employment by Sector, 2010–2015 80
3.3 Real Gross Value-Added Growth by Sector, 2000–2015 80
3.4 Breakdown of Manufacturing Output Growth, 1998–2007 81
3.5 Composition of Manufacturing Output 81
3.6 Export of Goods—Tree Maps, 2015 83
3.7 Diversification of Brazil’s Exports, 1965 and 2015 84
3.8 Kazakhstan Gross Domestic Product Growth versus Oil Price, 85
2012–2016
3.9 Kazakhstan Tax Revenues versus Oil Price, 2010–2015 86
3.10 Kazakhstan’s Exports of Goods and Services, 1995–2015 89
3.11 Economic Complexity Index—Selected Asian Economies, 1995–2015 93
3.12 Economic Complexity Index and Gross Domestic Product per Capita, 93
2015
3.13 The Product Space 95
3.14 Evolution of Structural Transformation—Product Space Maps, 97
1995 and 2015
3.15 Identifying Products at Kazakhstan’s Knowledge Frontier, 2015 98
4.1 Oil Production in Kazakhstan and the International Oil Price, 125
1994–2016
4.2 Contribution of the Oil-and-Gas Sector to Economic Activity, 125
1994–2014
4.3 Expenditures of Petroleum Producers on Oilfield Services in 2014, 129
Shares in Total
4.4 Expenditures of Petroleum Producers on Oilfield Services in 2015, 129
Shares in Total
vviiiiii Tables, Figures, and Boxes
4.5 Oilfield Services Types and Their Shares in Total Expenditures of 130
Petroleum Producers in 2015
4.6 Priority Areas for Research and Development in the Oil-and-Gas Sector 136
4.7 Research and Development and Professional Services in Kazakhstan:
Countrywide Expenditures and Shares of Major Cities 137
5.1 Global Value Chain Participation Index for Selected OECD Countries,
2013 145
5.2 Foreign Direct Investment Inflows, Global and by Group of Economies,
1995–2015 147
5.3 Freight Costs as a Percentage of Total Value of Imports 148
5.4 Average Import Tariffs, Kazakhstan, 2004–2016 151
5.5 Perception of Nontariff Measures in Kazakhstan 152
5.6 Total Exports and Imports, Kazakhstan, 1995–2016 153
5.7 Major Destinations as a Share of Total Trade Turnover, Kazakhstan, 153
1995–2016
5.8 Russian Federation Share of Total Kazakhstan Imports, 1995–2016 154
5.9 Transported Goods and Cargo through Railroads in Kazakhstan, 154
2009–2015
5.10 Freight Turnover by Major Means of Transport in Kazakhstan 155
5.11 Cumulative Total Gross Foreign Direct Investment
Inflows Kazakhstan, 2005–2015 156
5.12 Distribution of Foreign Direct Investment by Sector, 2005–2015 156
5.13 Conceptual Framework for Economic Policy 165
6.1 Crude Oil Price versus Gross Domestic Product Growth Rate, 174
1991–2030
6.2 The Composition of Kazakhstan’s Economy, 1998–2016 175
6.3 Key Economic Agents and Material Flows 183
6.4 KazORANI Database 185
6.5 Regional Gross Domestic Product in Base Year 2015 188
6.6 Baseline and Policy Simulation 188
6.7 Impacts of the Policy Reforms on Industrial Output 194
6.8 Regional Income Disparities 196
A1.1 Nested Production Structure 203
A4.1 Industry Impacts of Policy Reforms 210
A4.2 Industry Shares in Regional Gross Domestic Product 210
A4.3 Industry Shares in Regional Employment 211
A4.4 Regional Gross Domestic Product Impact of Policy Reforms 211
Boxes
2.1 Kazakhstan’s Top-Three Agro-Holdings under Financial Stress 34
2.2 Impacts of Climate Change on Agriculture in Kazakhstan 42
2.3 Challenges in Creating and Maintaining Agricultural Service Cooperatives 61
3.1 Role of State-Owned Enterprises in Algeria’s Diversification 87
4.1 Innovative Technology Solutions at Kashagan 137