Kazakhstan : Country Economic Memorandum, Getting Competitive, Staying Competitive, The Challenge of Managing Kazakhstan's Oil Boom

Abstract

Kazakhstan has made substantial progress in its economic transition, and faces a potentially bright future thanks to its oil wealth. The challenge is to increase the country's competitiveness, and expand the benefits of growth, while avoiding the economic and social risks typically associated with oil wealth. The overarching theme of the report is how to exploit the strengths of the Kazakhstan economy in the new oil environment, while avoiding the pitfalls that oil income typically brings. The report provides benchmarks for key aspects of competitiveness in Kazakhstan vis a vis Ukraine, Russia, and the eight most recent members of the EU rather than with other rich countries. This is for two reasons: 1) Kazakhstan's strategic objectives are to level with the European Union (EU) over the long run in terms of living and production standards, and levels of productivity and income; and, 2) although oil and gas already represents a large portion of exports, it does not mean the direct impact of oil in Kazakhstan is as large as in, say, Saudi Arabia or Venezuela. The policy agenda needs to formulate detailed policies and public investments. In this regard, interventions in six broad areas must be developed and prioritized. The six areas discussed entail economic policy, human capital development, infrastructure development, institutional framework, sectoral policies, and, research and development and innovation. Among the recommendations it is suggested that permanent gains in competitiveness will only be made if the county better pursues a strengthened human capital base. Moreover, competitiveness may be increased in the short and medium term if the economic cost of linking suppliers and consumers within global markets is reduced, and prudent macroeconomic policies are in place.