Konrad-Adenauer-Stiftung e. V. The Transformation of Kazakhstan’s Economy Nur-Sultan, 2020 UDC 338 (574) LBC 65.9 (5Kaz) Т44 Т44 «The Transformation of Kazakhstan‘s Economy. Nur-Sultan». Nur-Sultan: „IndigoPrint“ LLP, 2020. – 322 p. The book is published by the Konrad-Adenauer-Stiftung e. V.; it contains the articles of experts from Kazakhstan and Germany on main aspects of the economic transformation in the country. The authors describe the economic development, list the most important challenges, and give expert recommendations on various aspects. This book is meant for readers interested in the economic development of the Republic of Kazakhstan. UDC 338 (574) LBC 65.9 (5Kaz) The 1st edition was published in Russian in May 2017. The 2nd edition was published in 2019 and 2020 (in Russian – February 2019, in Kazakh – August 2019, in German – October 2019, in English – July 2020). The articles in the book do not necessarily reflect the opinion of the Konrad- Adenauer-Stiftung e. V. ISBN 978-601-80781-9-4 © Konrad-Adenauer-Stiftung e. V., 2020 Authors: Dr. Nurlan Baigabylov Dr. Vyacheslav Dodonov Thomas Helm Arman Kashkinbekov Adil Kaukenov Dr. Muslim Khassenov Dr. Madina Mussayeva Aliya Mussina Rakhim Oshakbayev Dr. Elmira Otar Dr. Diethard Rudert Dossym Satpayev Dr. Yerbulat Seilekhanov Nurzhan Syzdykov Petro Tokar Baurzhan Uakpayev The Transformation of Kazakhstan’s Economy 4 Contents Contents Foreword 7 Transformation of the Economy of Kazakhstan – Touch Points 9 Thomas Helm (Author), Nurzhan Syzdykov (Co-author) Tax Policy in Kazakhstan 65 Rakhim Oshakbayev Anti-corruption Policy in Kazakhstan: State and Prospects 77 Baurzhan Uakpayev Support and Development of Small and Medium Businesses in the Republic of Kazakhstan 97 Rakhim Oshakbayev Political Risk Management in Kazakhstan 107 Dossym Satpayev Prospects and Risks of the Eurasian Economic Union 129 Dr. Vyacheslav Dodonov Economic Relations of Kazakhstan and Germany: Status and Prospects 145 Dr. Yerbulat Seilekhanov The Factor of One Belt, One Road Strategy in China’s Policy towards Kazakhstan 153 Adil Kaukenov Renewable Energy in Kazakhstan: Challenges and Opportunities for Transition Economies 171 Arman Kashkinbekov The Agricultural Sector of Kazakhstan: Problems and Development Prospects 183 Dr. Diethard Rudert, Dr. Madina Mussayeva, Kazakh- German Agricultural Policy Dialogue About the current Monetary Policy Regime 209 Rakhim Oshakbayev 5 The Transformation of Kazakhstan’s Economy Foreign Investments in Kazakhstan: a Pragmatic Assessment of the Scope and Impact on Economic Development 215 Dr. Vyacheslav Dodonov Legal Regulation of the Labor Market of Kazakhstan: Problems and Solutions 231 Dr. Muslim Khassenov The New Middle Class as a Factor in the Modernization of the Economy and the Consolidation of Kazakhstan Society 263 Dr. Nurlan Baigabylov, Dr. Elmira Otar, Petro Tokar About Budget Parameters for 2019–2021 279 Rakhim Oshakbayev Central Asian Rapprochement. Illusion or Real Chance? 285 Dossym Satpayev The Commodity Partnership of Germany and Kazakhstan as Part of the Commodity Strategy of Germany and the Economic Policy of Kazakhstan 303 Aliya Mussina About the Authors 317 6 Foreword When in May 2017, shortly before the “Astana EXPO 2017” Exhibition, the first edition of the book “The Transformation of Kazakhstan’s Economy” was pre- sented to the public, no one could foresee that in just a few months it would be completely sold out. At the same time, over the past year and a half, Kazakh- stan has undergone changes in many areas of the economy, some of which are very significant. New difficulties and challenges have emerged, but new opportunities and prospects have opened up. Therefore, it is logical that the book cannot be simply reprinted; a new version is needed. This book has undergone a radical revision, additional articles have been included, and new authors have been involved. The surviving articles have been updated or completely revised. The second edition, just like the first, opens with a review introductory arti- cle, in which the authors tried to consider the most important aspects of the successful transformation of Kazakhstan‘s economy from the German point of view. This article is followed by the work of Kazakhstan’s authors - recog- nized luminaries in the fields that they represent, whether it is the field of tax legislation, business promotion or energy policy. Like the first edition, this book is meant for decision-makers in politics and business, as well as educators and all those who are interested in the trends of economic development of Kazakhstan. I wish all readers a fascinating reading of this book, which, I hope, will cause a fruitful discussion of the authors’ statements, as well as the issues of suc- cessful transformation of Kazakhstan’s economy. Thomas Helm, The Director of the Representative Office of the Konrad-Adenauer-Stiftung in Kazakhstan 7 The Transformation of Kazakhstan’s Economy 8 Transformation of the Economy of Kazakhstan – Touch Points Transformation of the Economy of Kazakhstan – Touch Points 1 Thomas Helm (Author), Nurzhan Syzdykov (Co-author) Introduction In December 2016, Kazakhstan celebrated the 25th anniversary of its indepen- dence. On December 16, 1991, Kazakhstan had proclaimed its sovereignty, thus becoming the last republic to withdraw from the Soviet Union before the Alma Ata Declaration formalized its dissolution five days later. The rea- son for this ‘belated’ declaration of independence was less an exuberant loy- alty to the system, but rather the strong interdependence of the Kazakh and Russian economy. Therefore, the first years of independence were marked by great economic and social difficulties – Russia was developing chaotically in the initial market conditions of the 1990s and unable to become a draft horse for the Kazakh economy. Subsequently, Kazahstan was lacking economic per- spectives, its citizens started to emigrate. A large number of ethnic Russians, for instance, left the former Soviet republic and moved to permanent resi- dence in Russia. Equally, out of almost one million ethnic Germans living in Kazakhstan in 1991, about 800,000 made use of the provision of Article 116 of the German Constitution and left for Germany as late repatriates. Quite often, this decision was based on purely economic reasons. The State of Transformation This initial stage, which did not facilitate comprehensive economic reforms, was followed by the commodity boom of the 2000s with a ‘fast money eupho- ria’ and long-awaited consumption opportunities. This boom, as in Goethe’s Faust: “Beautiful moment, do not pass away!”, significantly lowered the desire for reformation. Reforms were planned, but often inconsistently implemented or drowned in the thick of opposing interests. Much was done based on the principle “If it is working, why change it?” It took a dramatic drop in prices on the global commodity markets in 2014 to revive the enthusiasm for reforms. 1 This article is partially based on the article Transformation of the Economy of Kazakhstan: from Resource Dependence to a Modern Industrial Society by authors Thomas Helm and Nico- las Scholz, published in the first edition of the book Transformation of the Economy of Kazakh- stan, Astana, 2017. 9 The Transformation of Kazakhstan’s Economy How eager is Kazakhstan to reform its economy? According to the Transforma- tion Index BTI 2018 published by the Bertelsmann Foundation, Kazakhstan ranks economically in the middle- field of the countries surveyed (64th place out of 129) and on 93th and 81st place in the areas of political reform and governance.2 Regarding political transformations, the country is more specifically clas- sified as a hardline autocracy. An association agreement with the EU, as in the case of Moldova and Ukraine,3 is not mentioned in regard to Kazakhstan, even more than two years after their adoption. However, a Partnership and Cooperation Agreement between the European Union and the Republic of Kazakhstan was signed on December 21, 2015 in Astana. The EU-Kazakhstan Cooperation Council welcomed the agreement’s successful implementation on February 26, 2018. It covers areas such as trade and customs, the envi- ronment and climate change, energy and environmental economics, as well as the rule of law and legal cooperation. The Cooperation Council reaffirmed the parties’ common interests to strengthen relations and cooperation and, in particular, to stabilize and develop the region.4 For some reason, it remains unmentioned that Kazakhstan has been the only country in Central Asia that, for many years, constructively participated in the implementation of the EU Strategy for Central Asia. This fact clearly shows that “overseeing” foreign countries by means of valuation schemes has its limits and often turns out to be more than undifferentiated. This is a quite common phenomenon in regard to Central Asian countries. In fact, the report left out the results of the 2017 EXPO and, in particular, its numerous initia- tives to introduce renewable energy sources. In terms of economic transfor- mation, the index attests Kazakhstan by far the greatest reform drive among the Central Asian nations.5 At the same time, however, it reports a recent slow- down – only two years later – a stagnation in many areas of the economy.6 This is being explained by the still decisive oil price and its decline, as well as by blockade mechanisms related to an overly monostructured ownership of 2 Bertelsmann Foundation: Transformation Index BTI 2018, Country Report