Why Do Investors Not Hear Sagintayev?

Attracting foreign investments to the country remains one of the key priorities for the Kazakhstan government. A wide circle of the state and quasi-state agencies is involved in its implementation. Prime Minister himself is heading the process and not just formally. His sincere involvement is proved by his heavy activity in communicating with the top-management of potential investors. So far, however, he has not been successful.

The most succinct description of Akorda’s current policies and the state’s efforts to increase the country’s attractiveness for investors is given in the Prime Minister’s press service announcement of December 3, 2017 called “On the Eve of the Industrialization Day, the Government Meets with Investors form 30 Countries” and in Bakytzhan Sagintayev’s speech given at the Kazakhstan Global Investment Roundtable forum.

Although the inflow of direct investments in Kazakhstan has somewhat increased for the past two years, the biggest part of them is still going to the resource sector. And there is not enough investment to ensure the accelerated development of the national economy, especially of the processing industry and agriculture. And we are not even talking about the qualitative implementation of the president’s orders on the Third Modernization of the country. Therefore, the question arises as to why these things are the way they are.

First of all, we believe that, in Kazakhstan, the major part in attracting foreign investments is played by the state and not by banks or private businesses. Second, in their attempts to attract foreign investors, the officials are oriented towards large corporations simply because we can approach them directly. Third, among those managing this matter in the state apparatus, practically no one has the required qualifications, that is a real business experience and successfully completed business-projects.

Thus, the government and Prime Minister are talking to a wide circle of potential foreign investors but are heard by an extremely limited circle of the selected ones – those who not only have the possibility to choose the location and the time to apply their efforts anywhere in the world but also the necessary experience and managerial personnel. In other words, we are talking about the overqualified investors. As a result, the Kazakhstan business-projects are competing against the business projects in other countries. So, they lose on a regular basis and by many indicators, too.

Labor force is one of such key indicators that make the country non-competitive. Since, today, it is practically impossible to bring a large number of blue-collar foreign workers and engineers to Kazakhstan where the local employees are very hard to find, it turns out that, even given the empty business-niche, it is practically impossible to organize an industrial process in it.

The situation is not going to improve in the coming years because it requires to modernize the social consciousness. For example, to convince a large number of Kazakhstanis that the physical labor is not something abnormal, that the college education diploma is only needed for those who will actually pursue a career in the chosen profession, that the blue-collar professions can support a person and his/her family. Then, they will have to educate and re-educate hundreds of thousands (if not millions) of people transforming them into the high-quality labor force that will be mobile, self-learning, and ready to work hard, work independently and honestly.

Considering that, during the independence years, the Soviet processing industry and the tightly connected to it systems of the professional technical education and the mid-level technical education have collapsed entirely, to the point of the physical disappearance of industrial facilities and professional technical colleges, a new industrial revolution is required to change the situation.

Instead, Akorda and the government, in an easy state of mind of Nazarbayev, dream of not the post-industrial but of the “digital” economy. But it is impossible to create it without repeating the industrial period since the theoretical education of tens of thousands of people cannot replace the practical education of the millions.

As a result, for the large corporations, Kazakhstan business-projects are not prioritized since the said corporations operate all over the world and can choose the best options. The middle-sized business is incapable of surviving in Kazakhstan not only due to the omnipresent corruption, the inflexibility and the low-level qualifications of the state apparatus, the transportation problems, etc, but also because of the simple absence of one of the three key elements of any business-process – the labor force that has the required professional qualifications. As for the small foreign investors, they are not even being invited since Kazakhstan completely lacks the infrastructure for accumulating their money.

That said, the government and Prime Minister Bakytzhan Sagintayev personally should not count on the domestic support of their efforts to attract foreign investors in the nearest years. Let us explain.

Today, the large Kazakhstan companies without (or with a minimal) foreign participation both in the resource industry and agriculture are overindebted.  And such companies simply do not exist in the processing industry. Therefore, they cannot attract serious foreign investments by themselves.

The Kazakhstan commercial banks that attracted large amounts in 2002-2008 (and not only in the development projects but in the real sector of the economy) had been seriously compromised by the 2009 and the later years events. Not to mention that now they are not in their best state. By our estimate, with exception of Halyk Bank, the rest of the financial institutes in the country can go bankrupt any minute and, therefore, are incapable to manage the investment inflows.

Apart from that, the Kazakhstan state has lost the possibility to recklessly finance all kinds of investment projects due to the problems with filling the state budget and Nazarbayev’s strict ban on the further spending of the National Fund assets.

As for the domestic investors, they prefer to keep their money in the banks or abroad which is much more profitable, safer, and simpler.

Read the materials in it Why Will Investors Not Come? ,  “Alien” Investors Exit Kazakhstan Banking System.


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