The long-term economic goal of the Republic of Kazakhstan is to support a balanced and diversified economy. Economic and foreign direct investment (FDI) diversification will help provide sustainable growth and ultimately improve the living standards of the people of Kazakhstan.

This report is the outcome of work conducted by the OECD Eurasia Competitiveness Programme under the authority of the Central Asia Initiative Steering Committee (referred to in this publication as the “OECD Secretariat” when policy recommendations are formulated), in consultation with the Government of the Republic of Kazakhstan and participation of the private sector in Kazakhstan.

The Republic of Kazakhstan is the world’s largest land-locked country, with a territory of 2 725 thousand square kilometres – larger than Western Europe. Since the country declared its independence in December 1991, it has emerged as a key economy in Central Asia. Since 2000, per capita income doubled,1 the unemployment rate has been halved, and close to USD 30 billion of foreign exchange reserves have been accumulated by the National Bank of Kazakhstan (NBK) and the National Fund. From 2000 to 2008, the economy of the Republic of Kazakhstan (real GDP) grew at an average annual rate of over 9%, among the ten highest rates in the world. Despite a drop in 2009, real GDP was growing at 8% year-on-year, as recorded in the first quarter of 2010. However, despite this strong economic performance, several challenges have emerged.

Launched in July 2008, the OECD Eurasia Competitiveness Programme is a regional programme that contributes to the economic growth in eleven countries of the former Soviet Union and Afghanistan and Mongolia. The Programme involves close co-operation with public authorities, the private sector and civil society in these countries to support economic policy reforms and improve the business climate. It generates impact through an integrated framework based on two pillars: regional policy dialogue, peer dialogue and capacity building; and country-specific support in implementation at the regional, national and sub-national level. The regional approach allows countries to engage their peers in working to design and implement successful policies and institutions. Both pillars incorporate a sector-specific approach. As part of the Central Asia Initiative of the Eurasia Competitiveness Programme, a sector competitiveness review was initiated for the Republic of Kazakhstan to help diversify its sources of foreign direct investment and strengthen sector competitiveness. This project was designed to follow a three-phased approach over three years (2009-11): first by developing a sector competitiveness strategy (Phase 1), then by implementing specific aspects of the recommended policy reforms (Phase 2) and finally by assist in embedding mechanisms for sustainable reform (Phase 3). The objective of Phase 1 of the project, co-financed by the Republic of Kazakhstan in collaboration with the EU, is to support the country in defining a targeted competitiveness and investment promotion agenda.

The methodology used in this study focuses on strategic co-ordination between governments and firms. Its main characteristics are vertical: addressing policy barriers from a sector and value-chain perspective; capability-based: targeting sectors to generate high spillover and to enhance capabilities; and demand-driven: leveraging feedback from foreign investors and the local private sector on their priorities. The tools and frameworks used include a vertical approach to policy reform, including the Sector Prioritisation Framework; a review of OECD best practices related to diversification; an evaluation of the Single Commodity Transfer; and primary research.

The Sector Prioritisation Framework has identified a number of sectors within Kazakhstan’s economy for further analysis: agribusiness, logistics and chemicals for agribusiness and IT/business services. Both sector-specific and economy-wide barriers can be addressed through policy measures such as investment policy, enhanced investment promotion capabilities and human capital development. The report recommends that the Government of Kazakhstan implements the OECD Investment Policy Review, while other policies will require collaboration between government and the private sector. Investment promotion capabilities include measures such as a unified national investment promotion organisation, sectorfocused FDI promotion strategies, a network approach, an increased role of ministers and filling information gaps for investors. Sector-specific recommendations address specific policy barriers across the targeted sectors and focus is to be placed on these sector-specific strategies: development of modern retail, access to finance and investment policy and promotion. Within the IT sector, the government should enhance public-private policy dialogue, build business linkages, develop a supplier database and improve IT infrastructure.