Kazakhstan leads among Central Asian and CIS countries in terms of GDP growth

In Central Asia and the Commonwealth of Independent States (CIS), Kazakhstan stands out for its gross domestic product (GDP). As per the International Monetary Fund (IMF) analysts, Kazakhstan’s GDP in 2023 is expected to reach $259.3 billion, marking a 15% increase from 2022, which translates to an additional $33.8 billion. This growth is the highest in the region.

Kazakhstan’s GDP surpasses the combined GDP of countries like Uzbekistan, Belarus, Georgia, Armenia, Moldova, Kyrgyzstan, and Tajikistan. In 2023, only Russia, with a projected GDP of $1.86 trillion, exceeds Kazakhstan’s figure in the region.

By 2028, the IMF forecasts Kazakhstan’s GDP to rise to $354.7 billion, a 36.8% increase or $95.4 billion more than in 2023. This rate of growth is the most significant in the region, with the exception of Russia.

President Kassym-Jomart Tokayev of Kazakhstan has set a more ambitious goal: to double the country’s economy by 2029, aiming for a GDP of $450 billion. Achieving this requires a steady annual economic growth of at least 6%, with the manufacturing industry playing a crucial role in reaching this strategic target.

In Kazakhstan, the forecast for GDP per capita in the current year is nearly $13,000, closely matching the figures in the U.S. and Russia. This amount is substantially higher than in neighboring countries: it’s 11 times more than Tajikistan, 7.1 times more than Kyrgyzstan, 5.2 times more than Uzbekistan, and 2.5 times more than Ukraine.

The annual growth rate of this indicator is estimated at 13.7%, which equates to an increase of $1,600. By 2028, it’s expected to rise by 29.9%, or an additional $3,900, reaching approximately $16,800. This growth rate is the strongest in the region.

Starting from 2024, Kazakhstan’s GDP per capita is projected to be the highest among all Central Asian and CIS countries, surpassing even Russia.

Reviewing the long-term dynamics of Kazakhstan’s GDP, 2020 was the only year with a negative growth rate (-2.5%) due to the COVID-19 crisis. However, the economy rebounded with a growth of 4.3% in 2021 and 3.2% in 2022. In the first eleven months of 2023, the growth rate reached 4.9%.

This positive trend occurs despite the ongoing pandemic, the severe geopolitical crisis stemming from the war in Ukraine, and external shocks that have significantly impacted South Korea. Kazakhstan’s robust performance is partly due to effective state support measures and the development of its real economy sector.

The country is actively pursuing a diversification policy for its national economy, focusing on creating productive, export-oriented industries, particularly in manufacturing and the development of small and medium-sized enterprises (SMEs). By the end of this year, 291 non-resource sector projects worth 1.6 trillion tenge are expected to be commissioned, including 170 manufacturing projects valued at over 800 billion tenge. The following year, over 400 projects totaling 4.6 trillion tenge are planned.

Kazakhstan’s strategy involves transitioning from a raw material-based economy to strengthening its manufacturing sector. This approach has led to a near parity between the mining (14.5%) and manufacturing (13.4%) sectors in terms of GDP contribution in 2022. The overall share of the industrial sector in Kazakhstan’s GDP was nearly 30% at the end of 2022, up from 27% in 2020 and 24.9% in 2015.

Support is also extended to domestic product processors in Kazakhstan. The Law “On Industrial Policy” introduced a mechanism to supply these processors with raw materials at prices below market rates. For instance, in the first 10 months of 2023, aluminum processing increased by 20% (from 34.1 thousand to 41 thousand tons), and copper processing rose by 4% (from 6.1 thousand to 6.4 thousand tons). Additionally, large businesses are increasingly obligated to support processors through various initiatives, such as creating SME belts, regulated purchases by subsoil users, and reciprocal obligations in incentive measures.

Special attention is given to supporting Small and Medium-sized Enterprises (SMEs). State financial support (subsidies and guarantees) for business entities is growing each year. In 2023, the total financial support via the Baiterek National Holding reached 2.3 trillion tenge. By mid-2023, SMEs contributed 36.4% to the country’s GDP, and the number of people employed in these enterprises increased by 500,000, reaching 4.3 million.

The “Economy of Simple Things” state program to support entrepreneurship has also been enhanced: it now includes additional manufacturing industries, identifies 20 key economic sectors with extended subsidy periods up to 7 years, and introduces more support for social entrepreneurship.

Other significant sectors contributing to Kazakhstan’s GDP include transport and logistics (6.2% as of 2022), construction (5.3%), agriculture (5.2%), and telecommunications (almost 2%).

In telecommunications, Kazakhstan is implementing socially significant projects with the potential to significantly boost the economy. A key priority for Kazakhtelecom, the sector’s largest operator, is constructing a 5G network. By 2027, this network is expected to encompass over 7,000 base stations nationwide. By the end of the current year, 782 fifth-generation network base stations are slated for deployment. Under the national “Affordable Internet” project, the company aims to provide around 1,200 villages with internet connectivity using optical technologies and to ensure high-quality internet access on national roads through LTE technology.

Between 2024 and 2028, GDP growth is forecasted to be driven by the manufacturing industry (average annual growth of 4.9%) and the agro-industrial complex (average annual growth of 4.5%), thanks to investment projects. The construction industry is also expected to see steady growth (an average of 8.8% annually), spurred by investment development.

The expansion of the real sector is set to boost the service sector, projected to constitute 52%-55% of GDP. Additionally, the growth in various industries will be supported by the state through financial and non-financial aid to SMEs.

Investments in fixed assets in Kazakhstan reached 15.3 trillion tenge in the first eleven months of 2023, surpassing the total investment of 2021, which was 13.2 trillion tenge for the entire year.

In the industrial sector, capital investments from January to November 2023 amounted to 7.05 trillion tenge, an increase from 6.5 trillion tenge in the same period of the previous year.

Regarding foreign direct investment (FDI), Kazakhstan saw a gross inflow of $13.3 billion in the first half of 2023, compared to $11.2 billion in the same period in 2022. Excluding the oil production sector, FDI reached nearly $9 billion, up from $7.1 billion a year earlier. Specifically, in the manufacturing segment, gross FDI inflows were $2.9 billion, compared to $2.1 billion in the first half of the previous year.

The Kazakhstani Government is actively working to enhance the investment climate. This includes the operation of the Investment Headquarters and the Investment Ombudsman Institute. The Investment Headquarters has undergone significant reformatting and strengthening.

To encourage investment in manufacturing, new facilities will be tax-exempt for three years to reduce financial burdens and expedite reaching full operational capacity. Additionally, VAT on imported technological production equipment, not produced domestically, is handled through the offset method, effectively similar to a VAT exemption.

Further initiatives to improve the business climate include the introduction of additional mechanisms under investment agreements, allowing for individual terms with large investors. A 10-year stability guarantee in tax legislation is provided when signing an investment obligation agreement.

Thus, the IMF’s optimistic forecasts for Kazakhstan’s GDP growth align with the country’s internal development strategies. The ambitious goal of expanding the economy to $450 billion by 2029 appears achievable.

The law governing the national budget of Kazakhstan for 2024-2026 includes a provision for an increase in all types of state benefits and basic pension payments by 7% from January 1, 2024. This adjustment aligns with the forecasted inflation rate set by the National Bank of Kazakhstan. Additionally, the solidarity pension is set to increase by 9%, outpacing the inflation rate by 2%.

Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Economics Bot journalist was involved in the writing and production of this article.

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