Overview

Strategy

World Bank Portfolio

Number of projects: 13

Lending: US$3.8 billion

IBRD: 10 loans

GEF: 3 grants

This year marks the 25th anniversary of the partnership between the Government of Kazakhstan and the World Bank Group (WBG). Since 1992, the Bank has provided 46 loans to the country for a total amount of more than US$8 billion.

The Country Partnership Strategy (CPS) for 2012–17 is designed to ensure continued strong government ownership of the Bank-supported programs and concentrates on the Government’s key priorities of competitiveness and jobs; strengthened governance in public administration and service delivery; and the safeguarding of the environment.

The Bank is currently finalizing the Systematic Country Diagnostic, an evidence-based analysis that selectively addresses a set of binding constraints in order to support the country’s aspiration to achieve equitable growth and integration into the top 30 economies.

After studying the results and impact of the Bank’s operations in consultation with counterparts and civil society, a new Partnership Strategy with Kazakhstan was developed that will shape a new investment program and quality technical assistance to the Government for 2018–22.

KEY ENGAGEMENT

Since 2003, the World Bank has significantly extended its Advisory Services and Analytics (ASA) provided under the Join Economic Reform Program (JERP) since 2003. Over 14 years, the program has proven to be an innovative solution, with a client-driven knowledge agenda and Bank-selected work, bringing in and building up international experience while developing wider lessons on good public character.

The JERP is structured around the CPS pillars focusing on development gaps in growth, governance, and the public service delivery agenda. The program is designed to ensure strong government ownership while enhancing the Bank’s contribution to the country’s development in a way that goes beyond funding.

Doing Business in Kazakhstan 2018 is a continuation of a subnational study of the Doing Business series focusing on business regulations affecting small to medium-sized domestic firms in Kazakhstan.

Subnational Doing Business studies go beyond the largest business city to examine conditions across a number of locations in a single economy or region in order to capture local differences in business regulations or in the implementation of national laws.

The study creates quantitative indicators on four regulatory areas—starting a business, dealing with construction permits, getting electricity, and registering property—governed by local jurisdiction and/or local implementation of national regulations.

In 2016, it identified existing good practices and barriers in these areas across eight locations in Kazakhstan: Aktobe, Almaty, Astana, Karagandy, Oskemen, Pavlodar, Kostanay, and Shymkent.

This year, the study will look at the remaining regions and recommend reforms based on examples within the country and from the 188 other economies measured by the global Doing Business project.

The results will be shared with local- and national-level stakeholders to support all levels of government in their reform initiatives to improve the ease of doing business across Kazakhstan. The study is being conducted at the request of the Government of Kazakhstan, with WBG support.

Economy

Recent Economic Developments

As Kazakhstan’s economy started to recover the fall in global oil prices, real GDP grew by 4.2% in the first half of 2017 compared to 0.1% in the same period in 2016. The oil sector was the main driver of economic growth, as oil output increased by 9.7% due to the commissioning of the long-awaited off-shore oil field Kashagan in October 2016. More favorable terms of trade—as oil prices increased by 30%—also contributed to the better performance of the oil sector.

Additionally, the construction sector rebounded and grew by 5.9% due to the new, large capacity expansion projects in the oil sector. The non-oil economy also expanded on the back of dynamic activity in the manufacturing, agriculture, transport, and trade sectors. On the external side, robust oil exports improved the trade balance, leading to an accumulation of official reserves and some strengthening of the tenge.

The country’s macroeconomic policy stance remained accommodative. Lower inflationary pressures allowed the Central Bank to cut its policy rate further from 12% at the beginning of 2017 to 10.25% in August. The inflation rate fell from over 17% in July 2016 to 7.1% in July 2017, as the pass-through effect from the currency devaluation faded out. As inflation receded, consumer confidence improved, leading to higher private consumption and a recovery in domestic demand.

The banking sector continued to struggle, and credit growth remained stalled. To speed up the banks’ balance sheet repair, the Government injected US$6.5 billion (about 4% of GDP) into the Problem Loans Fund, and the Central Bank provided another US$0.5 billion for credit revival.

The poverty rate (using the US$5.5/day international poverty line) rose from 5.6% in 2013 to an estimated 7.8% in 2016. Despite the economic recovery and higher consumer confidence, household income remained under pressure, as the labor market has not yet recovered. Thus, real wages and salaries fell by 2.4% on average in the first half of 2017, and the official unemployment rate remained flat at 4.9%.

Economic Outlook

Despite the ongoing economic recovery, growth will remain lower than in the pre-crisis period. The growth projection for 2017 has been revised upward from 2.4 to 3.7%. This reflects a better-than-expected oil sector performance in the first half of 2017, driven by the commissioning of the Kashagan oil field and higher oil prices. Improved consumer confidence and higher domestic demand will drive growth in the non-oil economy.

Nevertheless, the current account and fiscal balances are not expected to see improvements in 2017. The current account deficit is projected to remain elevated due to higher profit repatriation by multinational oil companies, though this is partially offset by the profit shares that are reinvested as foreign direct investment back into the oil sector, boosting the capital and financial account of the balance of payments. The fiscal deficit is estimated to remain high due to the 2017 banking sector bailout.

Over the medium term, the GDP growth rate will hover around 3% a year, as the oil sector’s contribution to economic growth declines relative to 2017. More favorable terms of trade will drive improvements in the current account and fiscal balances. Moreover, implementation of inflation targeting will help stabilize consumer price inflation at levels below 5% per year.

As the economy recovers, labor income, the primary driver of poverty reduction, is expected to return to positive real growth. The poverty rate is projected to decline to 6% by 2019 based on the current growth forecast.

Project Spotlight

Fostering Productive Innovation Project

Following the successful completion of the Technology Commercialization Project (TCP) in 2015, which produced significant results by changing minds and proving that science can be commercialized, the World Bank and the Ministry of Education and Science of Kazakhstan have launched the Fostering Productive Innovation Project (FPIP). The new project promotes high-quality, nationally relevant research and the commercialization of technologies using the holistic approach needed to create a sustainable innovation ecosystem in the country.

The project supports a grant program and finances innovative consortia, innovation brokerage, and technology transfer offices. It will also try to establish an early-stage venture support market and improve coordination between stakeholders.

The project’s main components are introducing bottom-up competitive selection procedures that are open to all sectors of the economy with the intention of fostering a dynamic productive sector in the country, particularly a segment of private de novo firms. The first round generated strong interest from the private sector and scientific community, and out of 17 applications, three projects received funding of US$4 million and an additional US$2 million from private co-investors.

To date, 43 scientific groups have received grants to pursue the commercialization of research and development (R&D) ideas ranging from an IT system to help the vision-impaired to the bioremediation of soil contaminated by oil. The total amount of funding today exceeds US$21.2 million, with co-financing from private companies at 10% on average.

The project also complements the existing financial instruments and solutions suitable to different stages of start-up company development. Currently, the World Bank team and the main stakeholders at the National Innovation System are working together to establish an early-stage Venture Capital Fund to demonstrate the commercial viability of the investments. A solid team of technology brokers has been formed to catalyze the market for specialized business development services that can transform technology and innovation ideas into commercial projects acceptable to early stage venture capital or other investors. By 2020, a Technology Acceleration Network abroad will be created to help firms with information on foreign markets and international trends, facilitate interaction with partners, arrange training, and promote locally advanced technologies on foreign markets. Also, a coherent network of Technology Transfer Offices at 10 major Kazakh universities is being developed to build capacities and thus facilitate more efficient and timely technology transfers within the network.

Finally, the project is focusing on the launch of an Innovation Observatory to monitor innovation performance in both the private and public sectors of Kazakhsta

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All projects in Kazakhstan