Minister of National Economy of Kazakhstan Timur SULEIMENOV:
I DO NOT RULE OUT THAT KAZAKHSTAN’S ECONOMY CAN ACHIEVE SLIGHTLY MORE THAN 4% GDP GROWTH IN 2017
Minister of National Economy of Kazakhstan Timur SULEIMENOV talked about the achievements of the country's economics ministry in 2017, as well as about possible challenges and risks for Kazakhstan’s economy in 2018 in an interview with Interfax-Kazakhstan.
- Timur Muratovich, did the Kazakh president set the objective to achieve 4% GDP growth in 2017? At what expense is it planned to reach this figure? Did Kashagan contribute to these data?
- Of course, Kashagan's merit is, and the merit is considerable, this should not be passed over in silence. We clearly understand that Kashagan helped us out a lot from in terms of production, it exceeded its target by 46%: with a target of 5 million tonnes 7.3 million were extracted. In general, Kashagan's contribution as a GDP production factor is very significant – something under 1%. Therefore, yes, we recognize that this is the case.
But, nevertheless, we plan 4% growth and the non-mining sector there secured the most, something around 2.5%. The mining sector, oil industry, fossil minerals are approximately 1.5%. All the rest is the non-oil sector, these are our services, transport and logistics services, trade, education, medicine, industry, manufacturing industry. The manufacturing industry also grew fairly well - by 7%, some sectors of the manufacturing industry were growing at a record pace. The pharmaceutical industry grew by 42%, the furniture industry - by 9.8%, light industry - by 8.1% and so on. That is, the growth of the non-manufacturing industry in our country was also significant.
If you ask about December, we expect firstly: against the backdrop of improved oil prices, in December it averages $ 62-$63 a barrel. There was a large production volume of about 8 million -9 million tonnes of oil.
It is clear that trade in the pre-New Year period gets more active. And trade - we have no less than the entire mining sector (about 18% in the GDP structure).
We see a certain tendency that in the construction sector large facilities are completed by the end of the year. We hope that all budgetary procedures, public procurement completion procedures had been completed by December 31, 2017, and we will see certain growth in the construction sector because in the first 11 months [of 2017] the construction sector provided for a slight increase despite the implementation of the state programs Nurly Jer, Nurly Jol. As the analysis showed there were some shortcomings in paperwork on facilities on construction sites, which do not allow for the commissioning of finished construction projects. We expect that by December 31 all these procedures had been completed and the construction sector will show growth.
Thus, the mining, trade, construction, transport and logistics sectors will be those sectors in which there is significant growth in December, and we will reach 4% GDP growth for last year and maybe even slightly higher.
- What is your GDP forecast for 2018?
- Our forecast for 2018 is slightly more modest, we predict something like 3.1%. Firstly, our approach to oil prices is quite conservative. We included 45 dollars a barrel in macro-forecast and budget parameters, but, as you know, we approve it sometime in August-September. Accordingly, at that time the price situation was not the same as now, it was about 50-52. Now it's 62, and it's necessary to look how stable it is. Therefore, 45 dollars a barrel - this is for sure, on which we will dwell for now. With regard to macro economy if external factors suggest something different, we could always adjust the macro forecast at the time of reviewing the budget. So, proceeding from 45 dollars, proceeding from the other factors of the inter-industry balance we see that 3.1% is a normal situation when the economy is to grow 4% in 2017.
- What challenges / risks can Kazakhstan's economy face in 2018?
- It is clear that there is certain instability in oil prices.
Secondly - there is a factor of instability in the economic situation in the neighboring countries, I'm talking more about Russia, keeping not only sanctions in mind but also the ruble exchange rate.
On the major challenges, we hope that certain protectionist statements that are heard in the US will not be implemented, and we will not see any trade complications, currency wars on the part of the big hegemons of the world's economy - the US and China. If this happens, of course, this will strongly impact the dollar on the one hand, the yuan on the other hand, accordingly, trade, there will be pressure on us, both on the market and from the currency point of view, and from a commodity point of view and investment. We are also anxious about these major matters.
The challenges are: of course, to continue diversifying the economy, ensuring the implementation of the investment strategy, export strategy. It will be the first year of implementation of Digital Kazakhstan. We should move from words to deeds, provide broadband Internet access, which will be implemented on the principle of public private partnership. Let's see how this PPP project will be implemented, it is significant in terms of the amount, and even more significant in terms of the economic effect.
International Financial Center Astana (IFCA) full-fledged readiness for the first transactions is expected. In the first year, of course, we should not expect huge explosive growth and impact on gross regional product, gross national product, but nevertheless, it would be desirable to see the institutional, conceptual effect on the legal system of our country, on the investment climate, on the business climate, on the economy.
We are looking forward to launching IFCA, the first issuers, the first professional participants, maybe even the first court proceeding. Sometimes we want to test out everything in practice. If IFCA works in full, and we prove that people in Kazakhstan can work under English law and get 100% as guaranteed, while not going to any arbitration in Stockholm, Washington, this would a very good signal for investors.
- Does Kazakhstan plan foreign loans? If so, will they be directed to new projects or to refinancing some current loans?
- A coordinating council was established to implement framework agreements on partnership between the government and international financial organizations. Kazakhstan's prime minister presides over this council. Within the framework of this coordinating council, new projects are examined and the implementation of previously approved projects with international financial organizations are discussed, in particular with the IBRD, EBRD, ADB, IDB.
So, the council approved for 2017-2020 a pool of projects planned for financing by attracting government and government-guaranteed loans worth about $ 9.1 billion.
These projects are aimed at implementation of the program documents, including the state program Nurly Jol, and other strategically important projects on the modernization of municipal infrastructure, support of small and medium-sized businesses, development of agriculture, social modernization, etc.
The Ministry of Finance constantly works on optimizing the debt structure and its servicing, including early debt repayments, restructuring and refinancing, as well as managing risks of borrowing.
- What results, in your opinion, were achieved by the Ministry of National Economy in 2017?
- One can record the achievement of 4% GDP growth in 2017 in the collection of the country's results. This almost quadruples the 2016 indicator. This is very good and creates a good basis for future development.
As for the work, which we, as the Ministry of National Economy, influence every day directly, not indirectly, I would probably highlight the Tax Code in terms of importance. The document was drafted by our ministry together with a working group, it was recently approved by the Kazakh president. This is a huge document, systemic, conceptual, which impacts everyone because we all know that the things are inevitable – death and taxes. Any state, any government is always in quest of this optimal balance between the interests of the budget, citizens and business. Accordingly, if to take a little – it will be impossible to ensure some minimum living standards for socially vulnerable population strata, defense of borders, maintenance of public order and other nationwide objectives. If to take a lot – you will strangle the entrepreneurial initiative, or you will affect citizens and reduce their purchasing power, disposable income. Therefore, working out this balance is a very difficult thing. (...) The proposals that we drafted were agreed with the other state bodies, the government, approved with the [presidential] administration, passed by both chambers [of parliament] and approved by the president, and this shows that we could find the balance during this historical period. It was painstaking work, directly involving the business and not only the [national chamber] Atameken, but also industry associations. Therefore, I definitely refer the Tax Code to as Achievement Number One of our ministry in 2017.
The second one by significance is also a code – the Customs Code. Understandably, it is less significant than the Tax Code, but nevertheless, we are a land-locked state and, accordingly, we should strive to create the most convenient conditions for crossing its borders and reaching maximum in its transit trade potential. Without a normally functioning customs system, no physical infrastructure will work. It’s possible to build first-class railways, highways and so on, but if you have old rules that regulate the border crossing, goods movement, filling out declarations, customs regime, customs control, etc., then nothing will work. (...) The significance of the Customs Code is also very high from the perspective that transit potential should be implemented on the one hand, and on the other hand the tools to control smuggling and other similar matters should not be lost. Therefore, the National Customs Code for our ministry is Document Number Two. We were able to make it good, modern, very competitive even in comparison with the Eurasian Economic Union Customs Code. We looked at what our colleagues in the other four countries were doing and wanted to make our national code better, more business oriented, business friendly, as it’s said. I am confident that we have succeeded in doing so.
Last year the Strategic Development Plan until 2025 was devised by the Ministry of National Economy. This document has been approved by the government and is being agreed with the presidential administration. This is a key document for the state planning system, which features a medium-term development plan for implementation of the Kazakhstan-2050 long-term strategy in the lead-up to Kazakhstan joining the 30 developed countries. (...)
We hope that in the near future the head of state will approve it and in early 2018 we will have a clear, understandable road map not only on economic, technological, production, but also on social, institutional things - how we should move on towards 2025. Since we were a developer we supervised this document, I headed up the working group, so I believe that it can be attributed to the achievements of our ministry in 2017.
Last year, we also devised a large draft law on business deregulation [the draft law on the issues of improving the entrepreneurial activity regulation]. It really proved to be comprehensive, and we call it the "cardinal" because it is related to the cardinal improvements to doing business in Kazakhstan. We, probably, for the first time looked on the business environment facilitation not only from the deregulation point of view because common logic has always been as such - to cut off supervisory control functions, license-permitting functions and this is enough in order for the business to develop. In fact, practice shows that there are a lot of other things that directly affect the business. (...) We looked on this point of view, chose these ‘bottlenecks’ and drafted the bill that tackles them. Among the norms of the bill is also the information tools reform. We have nearly 1,200 information tools currently. In this law we looked at which of them are needed, which are not needed and dwelled on the complete list. We want to cut down this list by 30%. This is a big law, about 1,200 items, with amendments to be made to 113 laws, 13 codes. At the beginning of this year we will work hard on it. We hope that, as the law is good, positive, drafted at the instruction of the head of state, the parliament will back us, and we will be able to implement it quickly and effectively.
Last summer the law on the development of local self-governments was passed providing for the introduction of an independent budget from January 1, 2018 at the level of a rural community with a population of more than 2,000 people, and from January 1, 2020 - everywhere. From 2018 heads of villages, settlements will have their own budgets, own expenditure and revenue books. Seven types of taxes will remain with them plus they will have certain penalties, rent, income from the sale of local self-government property and so on. That is, the head of a village will have a full-fledged budget. Accordingly, s/he will be able to solve many things at their level without being guided and not following every step of the head of the district. And s/he will be responsible to local community gatherings. In our opinion, this law is a move to ensure that local issues are resolved on the ground.
In addition, last year we drafted an export strategy, this is extremely important because this document defines how to export, where to export, what tools to use for that.
We held the week of Eurasia with the OECD. We have succeeded in extending a country program. It should be noted that the OECD does not have country programs with any country in Central Asia, Asia. They do not work there where they do not see prospects. And they have the country program with us: a) signed and b) last year we succeeded in its extension.
- Thank you for the interview!
January, 2018
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