Kazakhstan’s industry is developing in the environment that is typical for economies of all CIS member countries. One of their major problems is connected with the transition to a steady economic growth. That is why many observers were surprised by results of the last three years: annual rates of the GDP growth averaged 11 % that placed Kazakhstan among the fastest developing countries in the world. So, exactly this became the subject of an interview given to Eurasian Metals by the republic’s vice prime minister Karim Massimov.


    EM: First of all, we would like to get an opinion of Kazakhstan’s government on so impressive economic indicators. What, in your view, made it possible to achieve such an upswing?
– Recently the government discussed results of the economic development. The analysis showed that from July 1999 to July 2002 the GDP increased 40 % and the increment of the industrial production amounted to 45 %. Therefore, the task set by the republic’s president Nursultan Nazarbayev to double the GDP in 6 to 10 year is being successfully accomplished.
In my opinion, preconditions for the current upturn were created in the mid-1990s, when there were deep structural changes connected with transferring the national economy to market principles. There was a rather fast privatization. In 1995 a package of laws on reforming concrete sectors of the economy was adopted. There were reforms of the financial system, agricultural complex, housing and communal services, etc. All this created conditions necessary to make market mechanisms start working with full force.
Another factor is Kazakhstan’s rich mineral raw material resources. Available reserves of raw materials allow to raise production in the metallurgy and oil-and-gas industry fast enough. Exactly these two sectors making highly liquid products are the basis of our economy.
The steadiness of the state power system should be mentioned as well. Kazakhstan’s political stability has been upheld since the country gained independence and that undoubtedly attracts investors.

    EM: Some time ago Kazakhstan’s political leadership made a decision, unprecedented for post-Soviet states, to let foreign companies freely acquire assets in basic industries. How are the results of this step assessed today?
– Prominent international companies came to our country’s economy bringing not only investments but modern management methods as well. As far as the mining-and-metallurgical sector is concerned, Glencore, for example, is engaged in producing lead and zinc, Samsung deals in copper, Ispat International is involved in making steel. The Eurasian Industrial Association is successfully operating in production of ferroalloys. The association is not well known in the world metallurgical business but I do not doubt that soon it will make itself recognized.
In the opinion of the republic’ government, pluses are evident. First, problems of employment, which are a headache for an executive branch in any democratic country, were solved. Second, new owners showed respect of the national mentality and existing traditions: they avoided doing things that could provoke tension. All necessary changes were made quite smoothly. That is why we practically had no strikes, mass layoffs, protracted delays with paying wages. Today enterprises owned by the private sector are operating steadily and sufficient investments are being made to secure their further development. It is a matter of concern for shareholders, though. The responsibility of the state is to control observing «rules of the game», collect taxes and support companies’ activity in foreign markets, when interests of the national economy demand it.
As for negative assessments, they belong mainly to radical nationalists: the government is accused of selling out the national wealth. Just one thing can be said in this respect. Ten years ago the industry was in the deepest crisis, enterprises were idling and that was the most serious threat to our state. Now the situation is completely different. The system proved its efficiency. That is why the government’s actions are not that often criticized by radical nationalists.

    EM: The liberal economic policy does not probably remove a responsibility for the use of natural resources. Is there any state control in this area?
– For us this is not a simple question. There was time, when the public and the press were overwhelmed by spontaneity of the market and the state was assigned the role of «a night-watchman». Romanticizing of market relations influenced power structures as well. But now the government is tightening the control over subsoil use and is trying to secure observance of certain norms in accordance with the international legal practice. For example, ecological standards are getting higher. Not all like it, but the level of requirements will not be lowered.

    EM: How large is the share of direct investments? Where are they being directed to in the first place?
– The economic model that is being realized in Kazakhstan is oriented on attracting direct foreign investments. That is why practically all invested money goes to develop specific production sectors. By the investment attractiveness the oil-and-gas industry is, of course, the leader among others. Its main investors are major oil companies, such as Chevron.
But along with positive tendencies there emerged problems as well. The inflow of capital in raw material industries is beneficial to our economy. However, too large an imbalance in favor of such industries may turn out negative, if all of a sudden prices for raw materials start falling down. Thus, one of the government’s most important tasks is to diversify the structure of the economy.

    EM: What is the essence of contemplated changes?
– There were a lot of debates about which direction we should take, where we should concentrate our efforts and what place Kazakhstan may get in the global economy in the long run. No final decisions have been made yet but the emerging concept comes to the following.
At first, it was proposed to give a priority to products with higher degree of processing. Accordingly, chemistry and petroleum chemistry, not production of oil and gas, should have been given preference. The prospect is luring. But, suppose, we managed to start making finished products – for example, plastic dishes – as a result of processing hydrocarbons. So, what is next? We would have to look for buyers in markets, which are oversupplied with similar products of the Chinese make.
It should be recognized: with all the attractiveness of markets of finished products the competition there is too strong and at this given historical moment the Kazakh industry could not withstand it. Thus, investments in appropriate industries will not be recouped.
I am convinced that gaining a niche in the markets of finished products is a long and complex process. We should move in this direction step by step. At this stage the following decision has been taken: we will make emphasis on those sectors, which can be reckoned components of the raw material complex. We call it development of the service sector. For example, developing an oil field requires drilling rigs, pipes of different types, reinforcement, etc. In a situation like this it is necessary to attract foreign investments in upgrading manufacture of finished products, marketing of which is domestically guaranteed. As a result, the scheme starts working in the opposite direction: raw materials become the final product for our economy.

P    R    O    F    I    L    E  Karim Massimov Vice prime minister of Kazakhstan, 37 years old. Has a comprehensive education: graduated from Patris Lumumba University in Moscow, continued his studies in the Peking institute of lingual culture and Wuhan university (China), in the Kazakstan state academy of management, Columbia university (New York). Main specialization: economics and international law. Doctor of economics. Knows English, Chinese and Arabic. Showed his worth in the area of external economic relations representing Kazakhstan in China and Hong Kong. Later was elected chairman of the Almata commercial and financial bank and after that headed the People’s Saving bank of Kazakhstan. In 2000 became minister of transport and communications. Vice prime minister since December 2001.

    EM: So, it means that Kazakhstan is fixing its raw material specialization?
    – What differs Canada and Australia from Venezuela and Columbia? All these countries are exporters of raw materials to the world market. But in addition of raw material production the first two managed to form up a developed economy but others failed. Now Kazakhstan is receiving large investments earmarked for developing rich oil and gas fields. However, a considerable portion of these investments goes abroad together with orders for costly equipment, which are placed with industries of other countries. It is obvious that we should use all the potential of our economy, not only its raw material base.

    EM: How far is the government ready to go so as to limit competition from foreign producers in this segment of the market?
– There was a time when the very fact of incoming foreign investments was important to the Kazakh economy. The political aspect played a certain role because this was a proof of confidence on the part of the international business community. In those years contracts were rather liberal for foreign investors. But today the state is stronger and it enjoys authority as an equal member of the international community. Now we are ready to assert our interests with more resolve, by protecting the national market among other things.
All will be done, of course, without violating civilized norms of relations in the economy. Kazakhstan’s government has been pursuing such a policy since the creation of our independent state. Besides, the extent of the republic’s openness and transparency will increase because Kazakhstan is getting prepared for becoming a member of the WTO. However, it should be noted that at the same time we are not going to give up the support of the national industry in view of our priorities. Specific measures of this support will be duly registered.

    EM: So as to fix the preferential right of Kazakh enterprises for fulfilling orders these projects should be sufficiently attractive for foreign capital. Any examples?
– A program to develop the northern part of the Caspian shelf is being worked out now. I think that the program will be made public this year. I can assure you that for investors its terms will be tough enough. In contrast to today’s situation, when we have to persuade investors to place orders with Kazakhstan’s enterprises, shares and services of Kazakh producers in new projects will be legally fixed.
With the introduction of the import substitution program in Kazakhstan there are proposals under consideration to set up new production facilities. One of the most interesting projects is to build a plant in Aktau to produce pipes for the oil-and-gas industry. Also, the question of forming a shipbuilding enterprise is being considered now: with large volumes of oil production the republic will need its own tanker fleet. In my opinion, these enterprises will set an example for other industries.

    EM: Apart from oil production, what are other sectors, where the growth of domestic demand for metals is predicted? How real is a possibility of new metal-consuming industries emerging in the nearest future?
– Due to the fast development of the construction industry the increased demand for construction metal (bars and other kinds of metal products for this industry) might be expected. Therefore, there are expectations that the market for products of the ferrous metallurgy will be expanding.
It is necessary, of course, to promote a bigger domestic metal consumption in a country with developed metallurgy. But there is always a certain apprehension: what if it goes too far. For example, we should not feel a desire to create a Kazakh car. Otherwise, we would have to close our market with high import duties because our own car would be surely noncompetitive. If we permit competition, then, the automotive industry will go broke. So, there should be a clear distinction between desire and expediency. It is necessary to develop those industries, whose products will be demanded by Kazakhstan’s economy. These approaches will be reflected in the new document called «Industrial Policy», which is being worked out now by the government.

    EM: The metallurgy in countries of the CIS needs a large-scale modernization so as to reach the up-to-date technological level. What is being done in Kazakhstan for solving this problem?
– Basically, it is enterprises’ own problem. If a private owner ignores modernization, then, his company will lose competitiveness and go broke. The world metallurgy is on the way of developing energy-saving technologies. Our plants built in the Soviet era are mainly designed for cheap electric power. But the time, when in Kazakhstan, as in other countries of the CIS, tariffs are raised, is not far away. There is no chance to survive in such a situation without switching to new technologies. We have cheap labor. And this is also a temporary phenomenon. Wages will be going up. An entrepreneur, who is planning to continue doing business in our country, has to take this into account and make necessary investments in advance.
The state is to stimulate this activity by providing tax cuts. There is a new draft law «On Investments» in the parliament that provides for these measures.

    EM: Integration processes in metallurgy are becoming one of the global tendencies. How does this tendency show itself in Kazakhstan? Are there any grounds to expect large mergers, with participation of transnational corporations among others?
– All large mergers have already taken place in our republic. Intensification of the interstate cooperation is another matter. I think that in a few years we will witness a series of mergers and acquisitions everywhere from Central Asia to South Africa with a participation of those companies that are operating in Kazakhstan as well. I have the information that negotiations of this kind are already underway.