БОЛЬШЕ, ЧЕМ НЕФТЬ ПУТЬ КАЗАХСТАНА к росту благосостояния через диверсификацию
What this Report is About: Diversification and Development Resource dependence is not a curse Shared Prosperity Kazakhstan Among Top 30 Most Developed Nations Factors Affecting Competitiveness Development Outcomes Improved Living Standards for All Volatility Management Labor Skills Productivity Diversification Diversification of Products and Partners Policy levers
Favorable external conditions have helped Kazakhstan, The international price of oil has tripled over the last ten years Kazakhstan s terms of trade have been largely favorable
There has been outstanding progress since independence GDP per Capita in 2000 and 2011, PPP constant 2005 international US$ The size of the economy has grown rapidly since independence Kazakhstan has joined the club of upper-middle income countries
Growth has been pro-poor Poverty has been halved over the last 10 years Poverty is at a historical low and has declined in rural and urban areas
MDA KAZ AZB UKR BLR TAJ KRG ROM LAT ARM LIT TUR HRV POL MKD ALB GEO SER rates of growth, % And there has been shared prosperity 14 12 Consumption growth of bottom 40% Consumption growth of total population 10 8 6 4 2 0-2 Note: The World Bank s shared prosperity indicator measures the growth in consumption of the bottom 40 percent of the population as a share of the growth in consumption of the total population
Kazakhstan remains largely dependent on resource revenues Resource Revenue as a Share of Total Revenues and Total Exports 2006-2010
And adjusted net savings (a measure of national wealth) is lower than in comparator countries though improving. Gross national saving and adjusted net saving as percent of GNI in Kazakhstan, 2010 Adjusted net saving (1995-2010), Kazakhstan and comparators
Oil price fall is similar to other historical episodes and accompanied by fall in other commodity prices Driven by sluggish global growth (lower demand) and higher supply, especially in oil. Terms of trade shock to oil / commodity exporters Magnitude of significant oil price drops 1 Cumulative changes in commodity price indices 2 Source: World Bank. 1. Non-consecutive episodes of six-months for which the unweighted average of WTI, Dubai, and Brent oil prices dropped by more than 30 percent. 2. Includes unweighted average of WTI, Brent, and Dubai oil prices, 21 agricultural goods, and 7 metal and mineral commodities. Source: GEP, January 2015, chp 4. Macroeconomic and Fiscal Management Global Practice 9
And the recent oil price fall drives home the need for diversification In 2015 and 2016 downside risks to economic growth are high: Continued weak global recovery >> No expectation that oil prices will move back up to pre-july 2014 prices Possible further weakening of Russian or Chinese economies Terms of trade shock can lead to: slower GDP growth (1.3 percent at US$53/pb) Higher current and fiscal accounts deficits global credit worthiness downgrade pressure on the tenge More competitive Russian products affecting domestic production/imports
What kind of diversification should be pursued? Partners Volatility Reducing Productivity Enhancing Products and Services Employment Creating Endowments Physical Capital; Human Capital; Institutional Capital
The endowments that matter for Kazakhstan Human Capital Physical Capital Institutional Capital
Kazakh exports to East Asia have lower human capital intensity than what Kazakhstan imports from East Asia Difference in Revealed Human Capital Intensity: Excluding Petroleum China Indonesia Japan -.3 -.2 -.1 0 -.3 -.2 -.1 0 Korea Malaysia EU27 2000 2002 2004 2006 20082000 2002 2004 2006 20082000 2002 2004 2006 2008 Year Difference between Kazakhstan export-based index and trading partner import-based index
The gap is even larger when we consider the intensity of capital, institutions, and financial depth in Kazakhstan s exports and imports -.7 -.6 -.5 -.7 -.6 -.5 Difference in Rule of Law Index: Excluding Petroleum China Indonesia Japan Korea Malaysia EU27 2000 2005 2010 2000 2005 2010 2000 2005 2010 Year Difference between Kazakhstan export-based index and trading partner import-based index Kazakhstan- Trading Partner -.7 -.6 -.5 -.4 -.7 -.6 -.5 -.4 Difference in Financial Development Index: Excluding Petroleum China Indonesia Japan Korea Malaysia EU27 2000 2005 2010 2000 2005 2010 2000 2005 2010 Year Difference between Kazakhstan export-based index and trading partner import-based index Kazakhstan- Trading Partner -.8 -.7 -.6 -.5 -.8 -.7 -.6 -.5 Difference in Revealed Capital Intensity: Excluding Petroleum China Indonesia Japan Korea Malaysia EU27 2000 2002 2004 2006 20082000 2002 2004 2006 20082000 2002 2004 2006 2008 Year Difference between Kazakhstan export-based index and trading partner import-based index
Firms cannot always find workers with the desired skills 60 Percent of firms identifying an inadequately educated labor force as a major constraint to firm growth 50 40 30 20 10 0 Belarus Kazakhstan Russia Ukraine Moldova Tajikistan Uzbekistan Kyrgyzstan Georgia Armenia Azerbaijan Source: Enterprise Surveys (2009) The World Bank
There is a mismatch between labor supply and labor demand in Kazakhstan Net Job Creation and Number of Graduates in Kazakhstan by Sector, 2010 Agriculture Industry and construction Services Net jobs created 2 45 164 VET graduates 16 47 127 HE graduates 2 38 122 0 20 40 60 80 100 120 140 160 180 200 220 (thousands)
With favorable demographic prospects, this is the time to invest in human capital Working Age Population (15-64) Changes (%) 100 2010-2030 2030-2050 2010-2050 80 60 40 20 0-20 Georgia Ukraine Belarus Russian Federation Armenia Azerbaijan Kazakhstan Uzbekistan Turkmenistan Kyrgyzstan Tajikistan -40-60
Institutional capital plays a prominent role in explaining TFP (contribution to aggregate TFP, percent) 100 80 60 40 20 0 ARM AZE BLR GEO KAZ KGZ RUS TJK UKR UZB Institutions Infrastructure Innovation Human capital International integration Note: Institutions are proxied by red tape, access to finance and intensity of competition, human capital is measured as access to labor skills and infrastructure captures the effects of physical capital. Source: World Bank staff calculations based on BEEPS 2009 and 2012.
Selected indicators of institutional quality for Kazakhstan and comparators - 2012 HF - Property Rigths WJP - Regulatory Enforcement HF - Corruption WJP - Crime WGI - Rule of Law WJP - Absence of corruption WGI - Control of corruption WJP - Limited Government powers WGI - Political stability No violence China Kazakhstan Russia Turkey Source: Worldwide Governance Indicators
Kazakhstan needs to make its regulatory environment more efficient (average ranking on sets of Doing Business indicators, 2012) strong TJK UKR UZB AZE MDA KGZ RUS Eurasia LMC UMC KAZ OECD ARM BLR Other transition econ. GEO LIC effective Regulatory processes Note: Strength of legal institutions refers to the average ranking on getting credit, protecting investors, enforcing contracts and resolving insolvency, while complexity and cost of regulatory processes does the average ranking on starting a business, dealing with construction permits, getting electricity, registering property, paying taxes and trading across borders. Source: World Bank staff calculations based on World Bank Doing Business 2013.
Reform priorities should focus on Kazakhstan s strengths and minimize shortcomings Strengths Shortcomings Resource Wealth: An important source of revenues and financing for development Can be a source of macroeconomic volatility, create Dutch disease, offers little linkages to the rest of the economy Macroeconomic Management: Macro management has been prudent and consistent; there are clear rules for the management of oil revenues. Excessive reliance on oil revenues can lead to macroeconomic imbalances; recent changes in the fiscal rule governing the oil fund create expectations of future relaxation of fiscal discipline; the level of non-performing loans is one of the highest in the world. Trade: Exports have increased significantly since independence; There has been some diversification and experimentation; there are several emerging champions where Kazakhstan has recently become competitive and also promising new opportunities Oil exports have risen faster than non-oil exports leading to growing export concentration; while there has been experimentation with new exports, survival rates remain low. Labor: Economic growth has generated a substantial number of jobs; employment and real wage growth have led to substantial poverty reduction; there has been a reduction in self-employment in favor of wage employment over the last decade Kazakhstan spends relatively little on education (3% of GDP); there is a mismatch between demand and supply in the labor market; there is a perception that the workforce lacks adequate skills. Institutions: Kazakhstan ranks 49 th in the 2013 Doing Business survey; there have been recent efforts to improve governance institutions; taxes are perceived as low. Corruption is perceived as high and anti-corruption institutions as ineffective; there are limitations on property ownership by foreigners and enforcement of contracts; credit availability to the private sector is seen as limited.