Key economic highlights in 2022 in Kazakhstan
The global economy endured a tough year and is expected to face a recession this year. The latest World Economic Outlook, released in October by the International Monetary Fund, lowered its global growth forecast for 2023 to 2.7 percent. It also forecasts the countries that account for more than one-third of global output to contract.
But economic turmoil is also accompanied by the COVID-19 consequences that continue to linger, including disruptions to food, fertilizer, energy supplies, and education losses.
Kazakhstan, like many other countries in the world, faced unprecedented economic and social challenges in 2022. It was amplified by the disruption of production, logistics and trade chains amid geopolitical tensions that led to declining business activity and rising prices for goods and services.
According to the data from the Kazakh government, for the 11 months of 2022, GDP grew by 2.7 percent, foreign trade increased by 34 percent to $111 billion, and exports by 45 percent, including manufacturing goods by 35 percent. The volume of investment in fixed assets grew by 6.6 percent.
The inflow of investments in education, trade, construction, transport and logistics, agriculture and industry increased significantly in the main sectors of the economy.
Inflation
One of the most acute problems in 2022 was the rise in food prices, affecting not only Kazakhstan but also seemingly stable economies, such as the European Union, United States, and Southeast Asia.
The annual inflation rate in the US reached 7.1 percent in November 2022, the lowest since December 2021, and below 7.3 percent forecast, according to U.S. Labor Department data published on December 13.
In the EU, the annual inflation rate was 10.6 percent in October 2022, up from 9.9 percent in September, compared to 4.1 percent just a year earlier, according to Eurostat, the statistical office of the EU.
In Kazakhstan, the growth of prices of socially important foodstuffs reached 22.3 percent. In terms of price containment measures, in 2022, the regions were tasked to bring the so-called revolving scheme to 100 billion tenge. The funds allocated under the revolving scheme allow retail chains to contract food products from farmers at a fixed price and sell them at below-market prices. The provision of preferential financing to business entities under the scheme is one of the effective market measures to contain prices.
Analysis shows that during the off-season, prices of socially important food products in retail chains that have made commitments under the turnover scheme are lower than the market average.
In August, the government decided to direct funding under the revolving scheme mainly to support producers rather than retail chains to ensure the saturation of the domestic market with their own products.
The Kazakh government said it would continue this work in 2023, including the construction of new modern vegetable storage facilities, contracting supplies of vegetables and fruits for the next harvest, and protecting the domestic market from dumping imported products.
Development of small and medium business
The development of SMEs has long been a priority for Kazakhstan. Overall, their share in the GDP in 2022 reached 35.7 percent, while the number of business entities increased by 20 percent to 1.7 million and the number of people employed in SMEs grew by 9.3 percent to 3.7 million.
In 2022, the government also updated its approaches to business regulation based on a so-called «from scratch» model. The idea to reform business regulation mechanisms was first voiced by President Kassym-Jomart Tokayev in his state-of-the-nation address in September 2020. Back then, he criticized the regulatory system for being «cumbersome, even punitive.»
«The basic principles of regulatory policy need to be changed. State regulation can only be justified by protecting the health of citizens and the environment. Both on a legislative level and in practice, the predominance of essence over form should be fixed: common sense and content should prevail over strict legal norms. The three-year moratorium on inspections provides a good opportunity to introduce such regulation from scratch,» he said.
Implementing business regulation from scratch will help reduce the administrative burden on businesses, thereby improving the efficiency of regulating the business environment and creating favorable and stimulating conditions for enhancing entrepreneurship.
The Kazakh government worked with the Atameken National Chamber of Entrepreneurs to identify nearly 10,000 requirements that do not correspond to the new regulatory policy.
At the same time, a new stage of reforming the regulatory system has started with the transition from inspections to preventive control through automation from January 1, 2023. At least 62 areas of control will be automated as early as mid-2023. The new approaches in the regulatory policy will be fully operational by the beginning of 2024.
Among other measures to boost entrepreneurship in the country was concessional micro-lending at 5 percent introduced in single-industry towns, small towns and villages, a regional program to support small and medium-sized businesses with concessional lending at the rate of 1 percent, and concessional lending at 5 percent for western and southern regions of the country.
Demonopolization of the economy
Another important area of the government's work in 2022 was countering private monopolists, developing fair and transparent market competition and returning illegally transferred assets to state ownership. The commission for demonopolization of the economy, chaired by the country’s Prime Minister Alikhan Smailov, was in charge of this work.
The state returned 11 key companies in industry and energy sectors, railways and telecommunications services, several large real estate projects in Astana and Almaty, and cash assets to the amount of $100 million and 2.5 billion tenge. The return of another 26 companies to state ownership is underway.
The measures to fight the shadow economy were to improve the legislative base and currency control, digitalization of tax and customs administration, creation of a national system of goods traceability, and development of cashless payments. Over the past three years, the level of the shadow economy has been reduced from 23 percent to 19 percent.
New fiscal policy
In terms of fiscal policy, it is aimed at reducing the non-oil deficit to 5 percent by 2030, as well as increasing the assets of the National Fund, modeled on Norway’s oil fund accumulating the country’s massive oil revenues to $100 billion.
In 2022, the Kazakh government introduced countercyclical budget rules, which allowed to reduce transfers from the National Fund by 1.4 trillion tenge in 2023, as well as stabilize the growth rate of public spending.
The rates of mineral extraction tax were increased, exemptions on dividends were excluded, the rates for digital mining were increased, and a single payment from the payroll was introduced for micro and small business with a reduction of the total burden from 35 percent to 20 percent.
The development of new Budget and Tax Codes began, providing for simplification of the budget process and further decentralization of inter-budgetary relations, stability and predictability of tax policy, and digitalization of tax administration.
Reducing state involvement in the economy
Reducing state participation in the economy is an important priority for Kazakhstan as the privatization program is underway. The nation’s Comprehensive Privatization Plan until 2025 includes 171 objects, while nearly 200 socially important water, electricity and heat supply facilities were excluded. As of today, 352 objects in the plan to the amount of 296 billion tenge have been transferred to the competitive environment, and 62 objects are at the stage of reorganization and liquidation.
One of the largest transactions in 2022 was an IPO of KazMunayGas, a national oil and gas company. The total volume of the IPO amounted to approximately 154 billion tenge ($330 million). There were nearly 130,000 submitted applications and the share of investors from Kazakhstan exceeded 95 percent. Kazakhstan’s IPO plans will also include Air Astana, QazaqGaz, and KazakhstanTemirZholy railways company.
All these measures are designed to reduce the government’s share in the economy to 14 percent by 2025.
Foreign investment flow
The data from the Kazakh government indicates that in six months of 2022, $14.5 billion were attracted as direct investments, 28 percent more than last year.
The latest data released by the Kazakh Foreign Ministry on December 30, which is in charge of attracting foreign investments along with the Kazakh Ministry of National Economy, shows
the gross inflow of foreign direct investment (FDI) to Kazakhstan increase by 17.8 percent to $22.1 billion in 9 months of 2022, in contrast to $18.7 billion in 9 months of 2021.
The largest increase in the inflow of investment was observed in the manufacturing industry - 36.9 percent ($4.9 billion), wholesale and retail trade 32.6 percent ($3.8 billion), transportation and warehousing 20.1 percent ($938.7 million) and mining 11.7 percent ($10.1 billion).
Top investors in Kazakhstan’s economy are the Netherlands ($5.5 billion), the United States ($5 billion), Switzerland ($2.6 billion), Belgium ($1.3 billion), Russia ($1.3 billion), South Korea ($1.1 billion), China ($996.7 million) and France ($538.1 million). At the same time, the inflow of FDI from Belgium and South Korea reached a record high in the history of bilateral relations with these countries.
Since the beginning of 2022, 36 investment projects with foreign participation worth $3.7 billion were implemented. More than 3,800 jobs were created.
The national pool of investment projects across various sectors of the economy includes 932 projects with investments from more than 30 countries for a total sum of about 32.1 trillion tenge and envisions the creation of nearly 130,000 jobs.
According to Deputy Minister of Foreign Affairs Almas Aidarov, the positive dynamics of growth in the FDI inflow demonstrates the confidence of foreign investors in the country and the ongoing reforms, despite the external factors that put pressure on investment flows into the country.
At an expanded government meeting on December 12, President Tokayev warned the government and the regional officials to make their work more effective in supporting the investment projects, saying that out of 284 planned investment projects in 2022, only 43 were implemented.
«Behind these figures are thousands of jobs not created, billions of tenge not working for the economy. It should be noted that the Ministry of Foreign Affairs works quite effectively to attract the interest of foreign investors. Ambassadors meet abroad, as the saying goes, bringing investors to us by hand. Problems begin at the implementation stage, on the ground. In a word, we are simply losing investors on the spot. That's why I would like to stress once again that the akims [mayors and governors] are responsible for supporting the implementation of investment projects, including land, permits, and infrastructure,«said Tokayev.
2023 will be a challenging year, with the ongoing geopolitical confrontations continuing to pressure global economies. For Kazakhstan, maintaining its economic growth and stepping up the reforms will only be possible with the effective interaction of all government bodies and agencies with the private sector.
Written by Assel Satubaldina