President of Kazakhstan Kassym-Jomart Tokayev’s State of the Nation Address, September 2, 2019. Part 2
III. DEVELOPED AND INCLUSIVE ECONOMY.
Kazakhstan’s economy is moving forward despite the global challenges.
From the start of the year its growth has been higher than the world average.
If necessary structural adjustments can be implemented, by 2025, annual sustainable growth of gross domestic product can reach 5% or higher.
In order to give a new impetus to the development of the economy, the Presidential Administration and the Government should carefully analyse the work of domestic and foreign experts.
We need to implement a number of structural tasks in line with the Long-term Development Strategy 2050 and the Plan of the Nation proposed by Elbasy.
First. Abandonment of the raw material-based mentality and diversification of the economy.
The "knowledge economy”, increased labour productivity, innovation development and the introduction of artificial intelligence have become major factors in global progress.
In the course of the third five-year plan of industrialisation, we should take into account the mistakes and shortcomings that have been made earlier.
The Government should take into account all my comments and fully implement the relevant instructions in these matters.
We need to increase real labour productivity by at least 1.7 times.
Raising our reputation in Central Asia as a leader in the region is a strategic task.
This is our political course determined by Elbasy.
Second. Increased returns from the quasi-public sector.
Our state-owned companies have become bulky conglomerates whose international competitiveness is in doubt.
In order to reduce the unjustified presence of the state in the economy, I decided to introduce a moratorium on the creation of quasi-state-owned companies.
We need to understand the genuine contribution of the Sovereign Wealth Fund to the growth of the welfare of the people over the past 14 years since its creation.
The Government, together with the Accounts Committee, must conduct an analysis of the effectiveness of state holdings and national companies within three months.
Quasi-state companies often compete with each other on the same field. In the field of housing policy, for example, seven state operators are operating simultaneously, and this is only at the national level!
The number of state-owned companies can and should be reduced.
At the same time, one should carefully approach the activities of state-owned companies operating in strategic sectors.
State control over them should be maintained. Otherwise, instead of state monopolists, we will get private monopolists with all the ensuing consequences.
The Government needs to systematically and substantively deal with pricing and tariff issues. This also applies to the goods and services of natural monopolists. It is no secret that prices in our country are high – from food and clothing to the cost of various services.
For example, there are questions as to why the flights of the main air carrier on the most popular routes are much more expensive, sometimes by up to 30%, than in Europe?! What is the reason for the relatively high cost of services at our airports?
Why is the cost of jet fuel for foreign carriers at Kazakhstan airports higher than for domestic?
As a result, the aviation industry of Kazakhstan is losing its international competitiveness, and the country’s transit potential is decreasing.
With the connivance of the relevant ministry and departments, an artificial shortage of rail tickets has been created.
Order should be restored in these areas urgently.
Our goal is to ensure the full development of market institutions and mechanisms with the stabilising role of the state.
At the same time, one should not forget about the "economy of simple things”. This is a priority area of our work.
Third. Effective small and medium sized businesses are a solid foundation for the development of cities and villages.
Small enterprises, especially micro-businesses, play an important role in the socio-economic and political life of the country.
Particularly, first of all, they provide rural residents with stable jobs, thus reducing unemployment. In addition, the tax base is created while the local budget is strengthened.
Furthermore, the development of mass entrepreneurship helps overcome paternalistic attitudes and dependence.
Therefore, the state will continue to support businesses.
Around 100 billion tenge has been allocated from the National Fund for this purpose.
However, according to experts, financial support is only received by the businesses affiliated with local authorities.
In fact, new companies and jobs should have been created within the new projects.
This is directly related to "the economy of simple things.”
However, local akims have not fulfilled the organisational work.
As a consequence, conditions were not created to increase the tax base, pension contributions, and strengthen the local budget.
In this regard, I instruct the Accounts Committee and the Ministry of Finance to take strict control over the expenditure of funds.
There are plenty of examples of entrepreneurship development in our country. Our whole society needs to support small businesses.
I instruct the Government to develop a legislative framework to exempt micro and small business companies from paying income tax for a period of three years.
Corresponding amendments to the legislation should enter into force from 2020.
My decision for a three-year ban on inspections of micro and small business entities will come into force from January 2020.
We believe in the integrity and law-abiding nature of our businesses, which should have responsibility towards consumers and citizens. During the moratorium, it is necessary to activate the tools of self-regulation and public control.
In cases of violation by business entities of the prescribed norms and rules, especially in the sanitation and contagious diseases sphere, such companies will be closed, their owners will be held accountable.
We are thus reducing the burden on businesses.
At the same time, there are still numerous problems associated with the actions of law enforcement and regulatory authorities.
Cases of raiding against SMEs have become more frequent.
My position on this issue is well known: any attempts to hinder the development of business, especially small and medium-sized ones, should be considered crimes against the state.
In this regard, additional legislative measures are needed. Parliament and the Government should propose a solution to this problem.
At the same time, it is necessary to strengthen opposition to the shadow economy, to tighten the fight against the capital flight and tax evasion.
Furthermore, the system of state financial support for SMEs needs to be "rebooted”, giving priority to new projects.
I instruct the Government to allocate an additional 250 billion tenge for the next three years under the new "Business Roadmap”.
It is necessary to actively introduce new forms of business support with an emphasis on social aspects – the creation of family businesses, primarily for large and low-income families.
Particular attention should be paid to the development of tourism, especially eco- and ethno-tourism, as an important area of the economy.
The 750th anniversary of the Golden Horde should be commemorated in terms of attracting the attention of tourists to our history, culture and nature.
For the development of tourism, it is important to ensure the construction of the necessary infrastructure, primarily roads, as well as the training of qualified specialists.
Fourth. Support for national businesses in international markets.
It is necessary to drastically increase the effectiveness of state support for exporting companies.
I speak, first of all, about medium-sized business.
Meanwhile, we do not have effective state support measures for this particular segment of entrepreneurs, especially regarding the sale of products. We need to support our SMEs.
I instruct the Government, within the framework of the State Programme for Industrial and Innovative Development, to develop a set of measures to support high-performance medium-sized businesses, including through tax, financial, and administrative incentives.
It is necessary to seriously intensify efforts to attract foreign direct investment, without which the potential for further economic growth will be limited. This is one of the priority tasks of the executive branch.
Within the framework of the Strategic Plan for the Development of Kazakhstan until 2025, appropriate targets are set for each industry and region.
Their achievement is the direct responsibility of the heads of state bodies, especially regional akims.
Kazakhstan has embarked on developing a digital economy.
There is a lot of work to do. Our task is to strengthen our leadership in the region in terms of the development of info-communication infrastructure.
The Government will have to adapt the legislation to new technological innovations: 5G, Smart Cities, Big Data, blockchain, digital assets, and new digital financial instruments.
Kazakhstan should have the reputation as an open jurisdiction for technological partnership, construction and placement of data centres, development of data transit, participation in the global digital services market.
The Government should continue to support the activities of the Astana International Financial Centre (AIFC), which, in essence, has acquired constitutional status. The AIFC could become a platform for the development of the latest digital technologies together with the Nazarbayev University.
Fifth. Developed agricultural industry.
Agriculture is our main resource, but it is far from being fully utilised.
We have significant potential for the production of organic and environmentally friendly products that are in demand not only in the country, but also abroad.
We must gradually increase the amount of irrigated land to 3 million hectares by 2030.
This will ensure growth in agricultural production by 4.5 times.
The Ministry of Trade and Integration and the Ministry of Agriculture should strongly support farmers with the marketing of their products in foreign markets.
The Government has already been tasked in this regard. This is a priority.
Furthermore, we need to move away from only exporting raw materials, which reached 70%, while the load of processing enterprises is only 40%.
An urgent task is to attract foreign investors to the agricultural sector. Discussions are already underway; the Government needs to achieve concrete results.
I would like to specifically address an issue that is of public concern.
As Head of State I repeat: our land is not for sale to foreigners. This is not allowed.
All insinuations on this issue must end. At the same time, our task is to ensure the effective use of land.
The issue of inefficient use of land resources is becoming increasingly relevant.
The situation is compounded by the low level of direct taxes on land.
Many of those who received land leases for free from the state keep the land for future use without working on it. A whole layer of so-called "latifundistas” has developed in the country. They behave like a "dog in a manger.”
It is time to begin the seizure of unused agricultural land.
Land is our common wealth and must belong to those who work on it.
The Government and Parliament should propose appropriate mechanisms.
This is all the more important because without a solution to this issue, it is already impossible to have a qualitative development of domestic agribusiness.
Today, the increase in meat production rests not so much on the problem of breeding stock but on the problem of the lack of land for farmers to grow fodder crops. Feed availability is less than 60%.
Improving agricultural productivity is impossible without ensuring appropriate conditions for a quality rural life.
We will continue to implement Elbasy’s special project "Auyl – El Besіgі”.
We have to solve the extremely difficult problem of maintaining small villages. Regional standards have been developed, which should now be implemented in more than 3,000 rural settlements.
I instruct the Government to allocate 90 billion tenge in the next three years in addition to the 30 billion tenge allocated this year for the implementation of Auyl – El Besіgі.
These funds will be used both for solving infrastructure issues – transport, water supply, gasification, – and for the repair and construction of schools, hospitals and sports facilities.
The expenditure of these funds should be under the strict control of all Government agencies.
Sixth. Fair taxation and sound financial regulation.
Despite the growth of GDP and incomes of the population, inequality within Kazakhstan society still remains and is even increasing.
This is an alarming factor that requires special attention.
I believe it is necessary to modernize the tax system with a focus on a more equitable distribution of the national income.
The Government should also pay attention to the growing volume of social contributions.
On the one hand, they ensure the stability of social and pension systems.
However, there are risks that employers will lose incentives to creating jobs and increasing wages. Businesses will go into the shadow.
Therefore, I instruct the Government to postpone the introduction of additional pension contributions in the amount of 5% until 2023. We will then return to this question.
During this time, the Government, business representatives and experts should calculate the options and come to an agreed decision taking into account the interests of both future pensioners and employers.
The Government must impose a ban on all payments and fees that are not provided for by the Tax Code. These are, in fact, additional taxes.
A separate problem is improving the quality of the current tax system.
It should stimulate companies to invest in human capital, in raising labour productivity, technical re-equipment and exports.
Non-cash payments should be introduced everywhere, eliminating the constraining factor – a high banking commission. To achieve this, it is necessary to actively develop non-banking payment systems with relevant regulatory rules. With the obvious simplicity and attractiveness of this segment, it should not become a channel for money laundering and capital flight from the country. The National Bank should establish effective control in this area.
The next issue is the support for the export of non-oil products. The issue of applying simpler and faster VAT refund procedures needs to be considered.
One of the most problematic issues in our economy is the insufficient volume of lending. Over the past five years, the total volume of lending to legal entities, as well as small and medium-sized businesses, has decreased by more than 13%.
Second-tier banks cite a shortage of good borrowers and make provisions for excessive risks in the cost of credit.
The problem of quality borrowers, of course, exists. But you can’t just pass on your responsibility and take only the easy route.
I expect the well-coordinated and effective work of the Government and the National Bank on this issue.
Another problem – debt load, especially of socially vulnerable segments of the population, – has led to the need for emergency measures. You are aware of this.
This problem has gained social and political urgency.
Therefore, I entrust the Government and the National Bank to prepare within two months for the implementation of mechanisms that are guaranteed to prevent the repetition of this situation.
The lack of effectiveness of monetary policy is becoming one of the obstacles to the country’s economic development.
Lending to businesses should be ensured by second-tier banks on acceptable and long-term terms. By the end of the year, the National Bank needs to complete an independent assessment of the quality of assets of second-tier banks.
Seventh. Effective use of the National Fund.
It is necessary to reduce expenditures from the National Fund on solving current issues.
These are the resources of future generations.
The use of the National Fund should be allocated only for the implementation of programmes and projects aimed at the formation of a competitive economy.
The amount of guaranteed transfers used should gradually decrease to 2 trillion tenge from 2022.
It is necessary to significantly increase the effectiveness of the Fund’s investment.
I task the Government, together with the National Bank, to elaborate concrete proposals to improve the mechanism of the use of the National Fund by the end of the year.
Eighth. Increase of salaries.
As the success of large mining companies increases, we see that the wages of our citizens have not significantly grown.
As this concerns the social welfare of the population, the Government must remain persistent in this regard.
I instruct the Government to consider the issue of incentives for employers to increase wages.