Economic Pragmatism based on the Principles of Profitability, Return on Investment and Competitiveness
Universal Economic Pragmatism
The essence of economic policy of the New Course – is universal economic pragmatism.
First – Adopting all economic and managerial decisions based purely on economic feasibility and long term interests.
Second – Defining new markets where Kazakhstan can participate as an equal business partner and create new sources of economic growth.
Third – Creating a favorable investment climate to help build economic capacity, profitability and return on investments.
Fourth – Creating an effective private sector economy and developing public private partnerships. We must do this by stimulating exports with state support.
New Personnel Policy
A key condition of success for our 2050 policy will be the right people to back it up. To ensure these people are in place we must:
• Enhance the managerial resources and potential that we possess.
• Introduce modern management tools and principles of corporate governance in the public sector.
• Exploit the benefits of international divisions of labor. In particular, attract external cadre resource for implementation of some of the tasks of the New course via the outsourcing programs. We must also attract the best foreign specialists in the open market and invite them to work in our country.
• The use of managers with extensive international experience and knowledge will have a dual effect: we will modernize management of our production and teach our own domestic cadres. This is a new practice for us.
Modernization of the Macroeconomic Policy
• We must adopt new principles of budgeting policy. We must spend only within our means and reduce the deficit as much as possible. It is necessary to build up reserves for a rainy day, ensuring Kazakhstan’s safety in the long run.
• The attitude towards budgeting processes must become as careful and thoughtful, as to private investments. In other words, not a single tenge from the budget should be wasted.
• The budget of the state must be focused on long-term, productive national projects that include the diversification of the economy and development of infrastructure.
Projects for investments must be selected in a strict manner, based on feasibility and rate of return. We must keep in mind that even the most modern projects become a burden to our budget if they require expenditures for maintenance, but do not bring revenues and do not solve the problems of our citizens.
• We must introduce a favorable tax regime for those employed in areas of production and new technologies. Whilst this work has begun I would like to see it enhanced. We must conduct a revision of all existing tax preferences and maximize their efficiency.
• We must continue the policy on liberalization of the tax administration and on systemizing customs administration. It is necessary to simplify and minimize tax reporting.
• We must stimulate market participants to compete, instead of searching for new ways of tax avoidance.
• Pragmatic reduction of tax supervision must minimize the dialogue between the economic entities and tax authorities. In the next five years everyone needs to move to electronic online reporting.
• Starting from 2020 we must introduce the practice of tax credits. In doing this our main goal will be to stimulate investment activity among entrepreneurs.
• New tax policy must be socially oriented. From 2015 it will be necessary to develop a set of stimulating measures, including the practice of tax exemptions for companies and citizens who invest their own funds in education and medical insurance for themselves, their families and their employees.
Future tax policy must stimulate internal growth, domestic exports and stimulate individual’s savings and investments.
• Considering the unfavorable global economic environment we must ensure the safety of the earnings of each of our citizens and maintain a reasonable inflation level with respect to economic growth. This is not simply a macroeconomic issue, this is an issue of social security of the country. This will be the major task for the National Bank and the Government starting from 2013.
• Kazakhstan’s banks, in turn, must fulfill their purpose and meet the demand of the private sector for loans. At the same time we must not weaken our control over financial system. It is necessary to help clear banks from problematic loans and start active work on solving funding issues. For that the National Bank and the Government, under coordination from the Presidential Administration, need to develop a conceptually different and new system of monetary policy, aimed at providing economy with necessary monetary resources.
• Policy of managing public and external debt.
• We must constantly monitor the level of public debt and keep it under control.
We must reduce the budget deficit relative to GDP from 2.1% in 2013 to 1.5% in 2015. Public debt must remain at a moderate level. This is a crucial task, because only that way we will be able to ensure the stability of our budget and national security in conditions of global instability.
• We must strictly control the level of quasi-public sector debt.
• We must adopt a whole new approach towards infrastructure development. Infrastructure must expand the possibilities of economic growth in two key ways. Firstly we should integrate the national economy into the global environment, and secondly move towards regions within the country.
• It is important to focus attention on exit routes from the country and create transport and logistics facilities outside Kazakhstan. We must think outside the box and create joint ventures in the region and throughout the world – Europe, Asia, America – building ports in countries with direct access to the sea and developing transport and logistics hubs at nodal transit points. In that regard we need to develop a special program “Global infrastructural integration”.
• We must develop our transit potential. Today we implement a number of large country-wide infrastructure projects that should lead to doubling the capacity of transit across Kazakhstan by 2020. By 2050 – this figure must increase 10 fold.
• Everything must be oriented towards one key goal – promoting exports to world markets where there will be long term demand for our goods and services.
• Infrastructure building must also meet the profitability criteria.
• Infrastructure should be built only in places where this leads to the development of new businesses and jobs.
• Within the country we must create “infrastructure centers”, to ensure coverage of remote regions and places with low population density with vitally important and economically necessary infrastructure facilities. Ahead of that we need to ensure transport infrastructure.
• I instruct the Government to develop and adopt a state program on infrastructure development in 2013
Modernization of the system of managing the state assets
Kazakhstan is not a large economy on a global scale. And we need to manage it very effectively. The country must work as a single corporation, and the state must serve as its core.
The strength of corporate thinking lies in the fact that all processes are considered as a whole. Public sector managers at all levels must learn and adopt the same business thinking.
I repeat once again: it is necessary not simply to allocate the country’s budget, but to invest funds thoughtfully and accurately.
Our main criterion for effectiveness is the rate of return from our investments. The quicker we build up the production potential of the country, the faster Kazakhstan will become a key player in the global market.
• The driver of this economic policy would be the National Fund.
• Resources of the National Fund should be directed at long term strategic projects. In 2013 the accrual of money in the National Fund must be continued,but we need to use those funds in a very rational and thoughtful manner.
• The state, represented by national companies must stimulate the development of the economy of the future and consider the sectors that will emerge as a result of the Third industrial revolution. Domestic industry must consume the newest composite materials that we must produce in our country.
• The state must stimulate development of transit potential in sphere of information technologies. We must ensure that by 2030 at least 2-3% of global information flows go through Kazakhstan. This figure must double by 2050.
• It is necessary also to stimulate private companies to invest funds in research and innovation. I want to highlight that whilst the introduction of innovation is important, it is not an end in itself. The country can reap real benefits only where there is demand for our new technologies. In the worst case scenario innovation becomes just a waste of money.
• The policy of selective support of specific companies and industries needs to come to an end. We must support only those industries that execute socially important, strategic functions and can demonstrate their effectiveness.
New system of managing natural resources
We must exploit resources as important strategic advantage of Kazakhstan to provide for economic growth and large external political and economic agreements:
• Already now it is necessary to accelerate as much as possible the access for our commodities on international markets, which in the case of a new financial collapse would be destabilized. Our major importers might significantly reduce the purchases of commodities, and prices could fall sharply. Our strategy will allow us to stay ahead of the curve and accumulate resources before potential market destabilization begins. These resources will then help the country overcome the hard period.
• Technological revolution changes the structure of commodity consumption. For example, the introduction of composite technologies and new types of concrete – causes depreciation of iron ore and coal reserves. This is another factor for us to accelerate the pace of extraction and delivery to world commodity markets exploiting the current global demand.
• Maintaining the status of a big player on hydrocarbon commodity market, we must develop the production of alternative energy sources, actively seeking to introduce technologies using solar and wind power. By 2050 alternative and renewable energy sources must account for at least a half of country’s total energy consumption.
If the nation wishes to have revenues from commodities in 35 years, then it needs to start preparing now. We need to develop a special strategy – defining priorities and partners, in order to plan out the work for years ahead, as this is done by all large corporations and conglomerates.
This is the key lesson from our own history: we started preparations and negotiations on Kashagan field almost 20 years ago, and are only now starting to see the results.
Main directions of strategy development
• To ensure that regions are interested in attracting investments, it is necessary to ban the moratorium on subsurface use permits.
• We must move from simple delivery of commodities to forming partnerships in area of energy resource processing and exchange of new technologies. By 2025 we must fully satisfy our internal market with fuels and lubricants in accordance with new ecological standards.
• We must attract investors to our country only on the conditions of transfer of modern technology for extraction and processing. We must allow investors to extract and use our raw materials only in exchange for creating new production facilities on the territory of our country. • Kazakhstan must become the regional magnet for investment. Our country must become the most attractive place in Eurasia for Investments and technology transfer. This is crucially important. To do this we must demonstrate to investors our advantages.
• All extracting enterprises must introduce only ecologically harmless production techniques.
In the interests of the nation’s future and state security, it is necessary to create a strategic “reserve” of hydrocarbon commodities. The strategic reserve will serve as the foundation of the energy security of the country providing another line of defense in troubled economic times.