Kazakhstan needs to boost productivity to reverse the slowdown in economic growth, says a new World Bank report released today.
The new Country Economic Memorandum “Kazakhstan: Reversing the Productivity Stagnation”, underlines that increasing productivity and growth will require robust reforms to strengthen the private sector, including strengthening the competitiveness of companies, reducing the role of the state in the economy, strengthening the rule of law, and fighting corruption.
In the 2000s, Kazakhstan had experienced exceptional economic growth — supported by rising oil and gas prices, rapid growth of domestic demand and soaring investments. During this time poverty and inequality declined significantly. However, since the global economic downturn of 2008, Kazakhstan’s growth has slowed markedly from over 10 percent in 2000-07 down to 4 percent in 2008-17.
“Kazakhstan’s productivity growth has witnessed a significant slowdown in recent years, curbing the rise of incomes and limiting welfare gains for most of the population” said Julio Revilla, World Bank Lead Economist for Central Asia. “This calls for ambitious reforms to strengthen the private sector as they can lead to greater overall productivity in the economy through diversification and competitiveness.”
It is projected that, without higher productivity, Kazakhstan will face continuously declining rates of income per capita. To achieve its goal of entering the top-30 global economies by 2050, Kazakhstan would need to invest over 60 percent of its GDP – an unrealistic level – to compensate for lack of productivity improvements.
“The productivity agenda has become even more important as Kazakhstan is now one of the top-30 countries in the Doing Business rankings. It is high time for the country to concentrate on productivity – which can take economic growth in Kazakhstan to the next level,” said Francis Ato Brown, World Bank Country Manager for Kazakhstan.
The report calls for ambitious reforms in three main areas:
Creating a level playing field for all firms. This means reforming long-standing structures that protect state-owned and other well-connected firms, and handicap new ones. The fact that older, less productive firms are able to stay in business shows that the process of creative destruction—whereby less productive firms exit the market, making room for newer and more productive ones—is not happening.
Strengthening the rule of law and dealing with corruption more aggressively. The judicial system is seen as one of the biggest barriers to an efficient and highly productive economic system. The World Bank Enterprise Survey data identify corruption as the top obstacle for private businesses in Kazakhstan across all sectors. The government should consider reforming public procurement procedures, as well as revising the burdensome and costly trading procedures, and border administration, to improve transparency.
Introducing structural changes in the economy. This is critical to boost private investment and reduce a disproportionately large role of the state in the economy. The strong presence of state-owned enterprises (SOEs) results in inefficient prices, quota-based production, and a number of other market distortions that serve to suppress the domestic private sector. Reducing the role of the state requires addressing private-sector distortions and eliminating the favorable treatment of SOEs.
A Country Economic Memorandum is an analytical report by the World Bank, which provides a comprehensive analysis of a country’s economic developments, prospects, and policy agenda, identifying policy reforms for key economic sectors.