Kazakhstan is open to investors from abroad and international ideas, Sir Suma Chakrabarti
NUR-SULTAN. KAZINFORM - The economic crisis caused by COVID-19 is a pressing issue of the global agenda. Sir Suma Chakrabarti, adviser to the President of Kazakhstan on Economic Development and Effective Governance, told Kazinform News Agency correspondent Akbota Kuzekbay in an exclusive interview how the pandemic has changed the world economy and Kazakhstan, what spheres should our country develop deeply and what issues are being discussed at the Supreme Council for Reforms.
Sir Suma, I would like to start our interview with economic consequences of the COVID-19. How the pandemic has changed the world economy? Besides, a new variant of the coronavirus, the omicron, is spreading in the world, which is also beginning to affect the economies of countries.
Pandemic has affected the world economy very deeply. We know that back in 2020 the world economy contracted by 3,5%. It’s a big contraction in a world economy. Most markets, including many in this region, also contracted as well. So, growth was affected, when growth is affected of course jobs are affected. On top of that we know about health outcomes, so many sad losses of life. We also know about the education outcomes. I am very worried that the lost education for many of our young people through the last two years - it’s a big learning loss and it means that we have do more to try and help them catch up, otherwise we could risk having a sort of lost generation. And I think another thing that we have to understand is that all the gains that we were making, for example, having more women employed in many countries. Well, they were the last people into jobs, therefore, the first out. Because often firms, companies try to retain their more experienced workers and will lose their newer workers and that’s affected many women in jobs and I think that’s meant growing inequality as well.
These are all bad implications, I think there’s been implications also for tourism, in the travel industry in many countries as well - that’s worrying me a lot. One thing I think, we should mention is the way we work. We used to talk about the future of work a lot. The future of work is going to be much more digital. And I think we can expect therefore a more hybrid way of working in the future, mixture of people coming to the offices like we used to, but also working much more from home and from other places using digital technologies. Digital is going to be much more part of our lives now.
We also have seen, I think, many of the global supply chains become much more localized. Therefore, the trend we had of the last 30 years of a globalized supply chain has been sort of slowed down and you will see much more localization going forward. All of these are really big changes. I would make one final point that we in Kazakhstan and other countries have to be ready for. In the last 30 years many of the credit rating agencies had begun to think about issues like climate change. So, we would rate a country like Kazakhstan and other countries in Central Asia what are they doing about climate change? That would be the part of the rating and it would help determine the rating the investment grade of that country. I think many people believe these pandemics will recur. It will come back and it will be part of our normal lives. Therefore, I think, we can expect rating agencies slowly, maybe, but they will surely also start to look at countries to see how they are responding through their health systems, how resilient they will be in tackling these sorts of pandemics and that will become part of the rating of those countries. In Kazakhstan we really need to make sure our health system for the future is resilient. Because it will not just affect the health of our citizens, but it is also affects, of course, the way credit rating agencies perceive us as well and has an economic impact too.
It should be noted that regions of Kazakhstan have so far left the COVID -19 ‘red zone’. How do you assess Kazakhstan's initiatives and measures to combat coronavirus?
I really pay a lot of tribute to the Government for the way it has tackled this in the last few months. We have now a large number of people double vaccinated. That is really important. So, we have more what I would say the herd immunity. It doesn’t mean you won’t get COVID, you can still get COVID even if you’ll have two vaccinations. But it means the effects will be milder and that’s important for health, for the economy as well. We have seen the Government actively push purchasing vaccines. We hope that QazVac will be approved by the WHO very soon. That’s quite an important thing also for Kazakh science to have that validated by the WHO. We’ve seen the capacity of hospitals in Kazakhstan grows as well. I think the reason and the good news that we are out of the «red zone» in the regions is actually the acceleration of the vaccination program.
How has the pandemic affected the investment volumes, in particular, investments in our country?
There are a lot of other things going on, not just a pandemic in affecting investments levels. This is a country that’s been very dominated by the natural resources sector - oil and gas, mining and so on. That sector has been affected anyway by the oil prices in the past, although the gas prices are rising, but the oil prices were depressed for a long time. Also, many more investors are looking at the application of ESG principles so that was also impacting on investment. But then the pandemic hit and it made things worse. Globally, not just in Kazakhstan, foreign direct investment fell very heavily, very sharply in 2020. I think, the fall was something 35% in 2020 and that’s mostly due to the pandemic. There’s been some rebound clearly in 2021 in Kazakhstan of course, but also in other regions as well of the world. In 2020 it’s true that FDI in Kazakhstan fell, I think it was down to 17 billion dollars which is a fall of 30% in 2019. The good news is that in the first half of 2021 FDI in Kazakhstan is already 11 billion, that’s 30% higher than the same period of 2020. So, there’s been a good rebound. We need to keep that going forward, that means we have to do more to improve the investment climate in Kazakhstan. It means, particularly, we should use more the AIFC which has been very successful, I think, got 6 billion dollars of new investment in Kazakhstan in the last three years. It’s actually been a big part of the success story of the rebound. The more we can use AIFC to give the investors confidence in English common law, in application of rule of law, for dispute resolution and the ecosystem around the AIFC - the more we will succeed in getting more investment to Kazakhstan.
Which countries are more focused on investing in Kazakhstan? How Kazakhstan does attract foreign investors?
Because the economy has been dominated by the natural resource sector - oil, gas, mining it’s not surprising that the big investors, if you take the last 15 years, have been the Netherlands, the U.S. It’s not surprising many of the oil companies are based there as well. Switzerland also has been a major investor in this country too. But most of that FDI went to those sectors - natural sources, to manufacturing and to trade. Now they chose Kazakhstan for some good reasons which we need to hang on to political stability, the strategic location of Kazakhstan between Russia and China - between two big markets. It’s been very important to us. And I think they also because of the AIFC as I said earlier. The growth of the AIFC platform in the last few years that also meant we got a lot more investment from them. What we now need to do is to find new investors in new countries to come into new sectors, not just traditional sectors. Because we want to diversify the economy.
Sir, You are the Deputy Chairman of the Supreme Council for Reforms under the President of the Republic of Kazakhstan. What issues do you initiate and promote at the Council?
The Council has been very active. I think we’ve had some seven meetings now. It’s been very active in its first year. We looked at the National Development Plan 2025, the Territorial Development Plan. We looked at the national projects - these great projects which cover economic as well as social sphere. We looked at public administration, we’ve also pushed privatization, looked at how to improve business regulation which is actually very important as well. In my case, particularly, we have several consultative committees. I have chaired the consultative committees on macroeconomic policy. We’ve had recommendations which has been approved by Supreme Council on how to improve economic growth, how to have better fiscal and monetary policy, how to get the banking sector moving again, capital market and also, we’ve looked at the National fund and the pension fund as well. So, we’ve been very active at that consultative committee as well and we’ve involved international experts in my work bringing them in. What we now have to do and this has been one of the big issues in Kazakhstan in the past - we’ve always been quite good at strategy in Kazakhstan that we really have to make sure happens. We have to be honest about what has been delivered and where progress isn’t happening. We have to go back and ask - why isn’t happening, what we can do, correct and so on. Because in the end this council isn’t there just to have nice discussions and so on - it’s there to approve things which will then get implemented and make the lives of every Kazakhstani better. That’s what we want. We’ve got to make sure delivery takes place and that’s really the task of Government, of course, not of the Government. I think it’s been working for a year now with we’re continually trying to improve the way it works and discussion is getting more interactive, more lively as well and a bit longer which is actually good. I am really hopeful that the Supreme Council is going to continue working this way. It’s very well chaired by the President - he likes to listen to the debates before he decides something. I think it’s actually a good new model for the way decisions might be taken in Kazakhstan.
On the 7th of December President Tokayev held a meeting of the Supreme Council for Reforms. The Social Code is being developed in Kazakhstan. How do you comment on this issue?
Social issues are always very sensitive, very difficult. They affect every single citizen. We have several challenges by 2030. We know, we have demographic challenge, social, economic challenge including the imbalance in demography.
In the rest of Central Asia their main problem is they’ve got a very young population. We have that too but we have a growing percentage of elderly. So that’s another big challenge for us going forward. The amount of spending on the vulnerable populations on social support has been really rising a lot and labour productivity should be higher as well. 5 million recipients in Kazakhstan get social support. That’s a bit more than a quarter of the population - that’s a lot. So, what we discussed in the Supreme Council was creating a more unified framework, a more integrated model. At the moment if you’re a citizen receiving support, you will be receiving from all different places and you have to interact with each different agency. We want it to be whereby the agencies interact directly with you, not you with every agency. Make it simpler for the citizen. So, you have a more integrated approach, through social support, you’ll have more proactive approach by the public services who will find you. I think, we also simplify the business processes as well and modernize the pension system. I think, at the end of this we are going to end up with the system which is more compliant and in line with the International Labour Organization’s (ILO) standards. That is important because Kazakhstan is increasingly as it’s become wealthier, rightly in my view, wants to reach the same standards for OECD, ILO. This Social Code reforms will help in that area to reach those standards. Implementation is going to be important.
In your opinion, what areas, what spheres should Kazakhstan develop deeply?
First of all, the national projects, we’ll already be looking at a whole range of sectors. I think, the next Supreme Council will need to see what is working with national projects, what isn’t working. So, we have to track that, it’s about delivery. So, it’s the task of the Government, of course, do that, but then for the President and Supreme Council to understand. National projects cover everything nearly, cover education, healthcare, all the economic issues as well. If I was to say, where diversification of the economy should go, we should debate this. I think, agriculture, tourism, transportation are three areas where Kazakhstan has potential. Why I say transportation? Because our strategic location between Russia and China is actually in a good place to think about logistics. We can actually serve other big markets.
So, agriculture has enormous potential but we’ve not really developed it as yet because of our focus on natural resources on mining, oil and gas.
I think tourism also has potential but we have to crack some things. At the moment Kazakhstan’s tourism is pretty much high-end, very expensive type of tourism. But yet the hotels outside Almaty and Nur-Sultan don’t cater for the modern type of tourists. You will not find young European, Japanese, Indian backpackers in Kazakhstan, they don’t come here. In partly they don’t come because they don’t know about history, which is sad. We have to do better on teaching people around the world about the great history of this country, but also, language. We need hotels which cater for that segment of tourists and we also need English language to be much more widespread. That will make it easier for two operators to bring people like that to the country. So have to diversify tourism within tourism to get more people to come. I think, the development of Turkestan has been a great thing to do. It is also potential for collaborating with Uzbekistan as well, because you could have easily see people going to Samarkand, Bukhara, but also Turkestan as part of a package when they come from abroad.
Let me ask you about Kazakhstan-Uzbekistan relations. President of Uzbekistan Shavkat Mirziyoyev visited Kazakhstan recently. How could you assess cooperation between Kazakhstan and Uzbekistan in general?
As you know, I am also adviser to the President of Uzbekistan as well. I was really delighted to see this visit taking place, I think, it went very well. I have heard from both - Nur-Sultan and Tashkent thought that visit was very good. I think the two economies are quite complimentary. I mean the Uzbek economy has a lot of industry from the soviet days. It’s a bit more diversified than the Kazakh economy, but much poorer. So, Uzbekistan is still lower middle-income country, while Kazakhstan is an upper middle-income country. I think because it’s complimentary, I think the opportunity for cooperation is much higher. It’s not competing against each other for the same things, it’s mutually beneficial cooperation. I would say, it is much more partnership rather than competition. It was wonderful to see I think 6.6 billion dollars’ worth joint initiatives signed between the two countries.
In your opinion, what areas of cooperation need to be strengthened by two countries? Over the first ten months of 2021, bilateral trade grew by 30 30% reaching USD 3 bln.
You make an interesting point, because bilateral trade did grow this year, you are right. But it grew from having decreased last year because of the pandemic. Last year bilateral trade had actually fallen quite a bit. If you go back to 2019 it was USD 3.4 bln and in 2020 was USD 2.9 bln. So, it fell because of the pandemic. It’s good that in 2021 we’re seeing a rise back. I gave a paper to both the presidents about some joint initiatives which would give benefits, I think, to both countries over a wide range of areas and these included facilitating bilateral trade, but also industrial cooperation, creating jobs, developing capital markets, using AIFC, for example, transport connectivity and also vaccine supply. We gave a long list of initiatives. International center for trade and economic cooperation was one of those ideas. Trying to use AIFC much more as a Central Asia entity, not just a Kazakhstan entity. We said: let’s look at the Tashkent-Shymkent-Turkestan economic corridor as well as a border area. We thought both countries should recognize and reduce certifications. So, in other words they should recognize each other’s certifications as good enough for them, that makes it easier for business. We thought climate change, land degradation, Aral Sea - sort of issues could be tackled together and joint tourism program as well, and vaccine supplies. Some of these initiatives are now under implementation and now some of them are under discussion. I think the economic corridor in Tashkent-Shymkent area is one of the real possibilities for changing the cooperation between the two countries. We need to deal with the constraints that businesses face across the border with each other. Both sides need to do better on that. We have weak infrastructure there and poor connectivity, and I think this can be fixed.
What this visit, I think, President Mirziyoyev and his discussions with President Tokayev have showed that there is a great political will to fix these things. I am really quite optimistic now.
Kazakhstan and Uzbekistan have decided to bring bilateral cooperation to a new level. Sir Suma, You are an adviser to the Presidents of Kazakhstan and Uzbekistan. In this regard, do you make any analysis on the economic development of the two countries?
I think it’s quite clear that for those 30 years under the great leadership of Elbasy and then now President Tokayev what we’ve seen is a country that’s been very open to investors from abroad, to international ideas. For 30 years Kazakhstan has been growing very well. We are facing up to the challenges, we will solve those problems. But we’ve had 30 years of experience of this. In the case of Uzbekistan for 25 of those 30 years it was still very closed, it was operating in a different way. And now for five years it’s really pushing its changing. So, it’s trying to catch up, but it’s a long way to go. A lot of good changes have happened in Uzbekistan already. But there is still quite a lot to catch up. At the moment the income level of the two countries is quite different. I have a great hope because I think in both countries, we have leaders who are big reformers. The analysis that I’ve been doing has focused on three areas in both countries but with different recommendations. First of all, what sort of economic reforms do you need in Kazakhstan and Uzbekistan to improve the investment climate further is to build more of a market economy and to really get economic growth moving but also equitable economic growth.
The second pillar of work is to make a public administration in both countries more effective. I think, this is one of the biggest problems we have in both countries: the public administration quality and capability. My aim is to improve that more and more. I think, the AIFC is one of the great examples of how you can create a public institution that is actually quite different from Government in many ways. I notice also that management of AIFC is tremendously good.
The third area is about communications and reputation of the both countries. I think the both countries are becoming more open. You can see there is more open discussion, this is good. I know it’s sometimes difficult for people who grew up in the old system to see this openness and sometimes big criticism. That’s democracy. There are many answers and you have to listen to people. I think both presidents, President Tokayev and President Mirziyoyev, have said: «We want the state to start listening more to the citizens». Communications are very important. Third pillar is very much around how to communicate better as well, and then also how to continue to improve reputations of the both countries internationally.
Sir Suma, thank you very much for the interview. We wish You all the best!
Thank you very much!