Project Number: 51406-001 Technical Assistance Number: 9496 February 2018
Kazakhstan: Promoting Entrepreneurship and SME Development in Kostanay Region
This document is being disclosed to the public in accordance with ADB’s Access to Information Policy.
This report does not necessarily reflect the views of ADB or the Government concerned, and neither the ADB nor the Government shall be held liable for its contents.
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CONTENTS
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A. Introduction ...... 1 1. Background ...... 1 2. Report on development and financing of SMEs in Kostanay region ...... 1 3. Database of SMEs in Kostanay region ...... 2 4. Action plan 2018–2022 for entrepreneurship and SME development in Kostanay region ...... 7 5. Training and capacity building programs ...... 11 B Context ...... 13 1. Overview of the Regional Economy ...... 13 2. Employment in the region ...... 17 3. Lending Trends and Constraints to Growth ...... 24 4. Spatial development ...... 38 5. SME sector ...... 55 6. Business Climate Conditions ...... 65 C. Available resources and instruments for the Akimat of Kostanay region ...... 79 1. The System of State Planning (SSP) ...... 79 2. Acting State Support programs tailored to SME development in Kostanay region 92 D. Analysis ...... 99 1. SWOT Analysis ...... 99 2. Alternative scenarios ...... 104 3. Risks for private sector development ...... 108 E. The Roadmap for SME and entrepreneurship development in Kostanay region (Roadmap) ...... 113 Appendix 1 ...... 116 Appendix 2 ...... 120 Appendix 3 ...... 123 Appendix 4 ...... 127 Appendix 5 ...... 142 Appendix 6 ...... 144 Appendix 7 ...... 145
A. Introduction
1. Background
1. In September 2017, the Asian Development Bank (ADB) agreed with the Akimat of Kostanay region to provide support for the development of small and medium enterprises (SMEs) in the region. ADB’s assistance has been provided in four phases, each associated with a key output (Table 1).
Table 1: Key Outputs of ADB Technical Assistance Target Actual Completion Completion Date Phase Output Date Report on development and financing of SMEs in 31 December 16 January 2018 1 Kostanay region 2017 30 September 1 version – 2018 30 August 2018
2 version – 10 December 2018
3 version – 2 Database on SMEs in Kostanay region 20 February 2019
4 version – 10 December 2019
5 version – 5 February 2020 Action plan 2018–2022 for entrepreneurship and 31 March 2019 in process 3 SME development in Kostanay region 4 Training and capacity building programs 30 June 2019 6 December 2019 Source: Asian Development Bank.
2. Report on development and financing of SMEs in Kostanay region
2. In October 2017, ADB hired two consultants to work on phase1 of the project: N. Peter Knoll, SME finance specialist and Yerlan Khassenbekov, SME development specialist (collectively, “Consultants’). ADB consultants analyzed open-source data on current economic development, SME development trends, supply and demand of financial resources in the Kostanay region. They visited five districts in the region, conducted meetings with more than 30 SMEs, representatives of major branch offices of STBs, 3 MFIs, local office of EBRD, local universities, state institutions - Damu and ACC, Akimat officials, and other local stakeholders. The analysis and key findings were included in the inception report.
3. The main hypothesis on a problem with access to finance was proved partly true. Though it is not a separate problem but the element in a chain of causes and effect factors. Later this hypothesis was tested through the rest of TA implementation phases. The reasons that constitute problem with «access to finance»:
a. many legal entities that are keen to get credit financing cannot satisfy the collateral requirements of second tier banks and MFIs; 2
b. many legal entities do not want to borrow money from the banking sector because interest rates of 16% to 23% (median close to 21%) exceed their rate of return, which averages 15% among all economic sectors.
4. Other identified barriers to SME development include:
a. weak transport infrastructure, unevenly distributed in the region;
b. small markets due to low concentration of people, business, financial resources;
c. low purchasing power among the majority of local residents;
d. young people and highly qualified specialists leave Kostanay region;
e. low competitiveness of local SMEs;
f. few start-up activities in Kostanay region;
g. small share of civic-minded people among local residents;
h. very low R&D activities among private entities.
3. Database of SMEs in Kostanay region
5. ADB had started the second phase with the focus on creation of a dedicated SME database in April 2018. It was planned that the SME database would serve as a management information tool for the Akimat of Kostanay region in designing, implementing and reviewing the SME and Digital Kazakhstan support policies and programs.
6. Five versions of the database have been formed. The first version was a basic database containing entries for each registered SME in the region. The second version integrated additional data entries and a section on individual entrepreneurs (sole proprietors). The third version updated all datasets both for legal entities and individual entrepreneurs on taxes paid, pension payments, other as of 2018. The fourth version was with the addition of some data on state support, state and subsoil users procurement, other valuable data. The fifth version was about revision of come functional parts of database after the pilot testing had been conducted among Akimat’s associates.
7. By the end of July 2018 the software development for the Unified database on Kostanay region’s SMEs had finished.
8. In September 2018 the first version was presented to the Akimat officials, they showed genuine interest and requested the following additions to the developed SME database. a. integrate all existing and valuable information on Individual entrepreneurs (sole proprietors); b. add information on approved financial support in tenge in the interactive passport of an entity; c. develop the analysis tool on comparison of two separate entities in the interactive passport of an entity;
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d. develop the analysis tool on comparison of indicative objectives of state development programs to the volumes of actual financial disbursement within each of state development programs in a given year; e. support the Akimat in the first stages of SME database integration into the Akimat’s existing electronic systems
9. Given these requests and understanding the client’s expectations, the team spent two months to develop and integrate new datasets.
10. On 10 of December 2018 the Akimat requested that the SME database become a part of the existing Management Information System (Management panel) and add additional registries, such as that of state financial support programs.
11. Overall, 44 various registries have been combined, cleared and indexed in the SME database so far.
Table 2: The list of registries and procedure of updates of data in the SME database
Update # Registry/ type of data Procedure period
National databases
Updated through direct 1 The registry of legal entities Annually uploading
The registry of individual Through official Akimat’s 2 Annually entrepreneurs request
Business registry by Committee Updated through direct 3 Biannually of statistics of RoK uploading
Through official Akimat’s 4 Pension payments Annually request
Tax payments
Updated through direct 5 The registry of taxpayers Annually uploading
The registry of international Updated through direct 6 Annually economic activity uploading
The registry of unreliable Updated through direct 7 Annually taxpayers uploading
Updated through direct 8 The registry of VAT payers Annually uploading
The registry of taxpayers, which Updated through direct 9 Annually are under liquidation uploading
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The registry of taxpayers with whom all deals were done Updated through direct 10 without actual contracts or Annually uploading works/services done or goods delivered
Automatically (through 11 Taxes paid (by type of a tax) Quarterly remote access to original source)
12 Taxpayers with tax debt Quarterly Automatically
13 The registry of tax reports Quarterly Automatically
State procurement
The registry of all state 14 Quarterly Automatically procurement participants
The registry of blacklisted 15 Quarterly Automatically suppliers
The registry of state 16 Monthly Automatically procurement contracts
The registry of complaints on 17 state procurement from Monthly Automatically suppliers
Employment
Average number of employed Through official Akimat’s 18 Annually by an entity request
Through official Akimat’s 19 Average salary Annually request
Customs Union certification
The list of bodies on certification, which are enlisted 20 Quarterly Automatically into unified registry of the Customs Union
The list of testing laboratories (centers), included in the unified 21 Quarterly Automatically registry of laboratories of the Customs Union
The registry of issued 22 certificates of the Customs Quarterly Automatically Union
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The registry of issued declarations on 23 correspondence to common Quarterly Automatically format of the Customs Union (old certificates)
The registry of all registered 24 licenses on security of transport Quarterly Automatically vehicles’ construction
The registry of registered 25 notifications on termination of Quarterly Automatically certificates
Legal statistics
The registry of examinations of the Committee of industrial Updated through direct 26 Annually development and industrial uploading safety
The registry of examinations of Updated through direct 27 Annually the Committee of emergency uploading
The registry of examinations of Updated through direct 28 Annually the National Guard of RoK uploading
The registry of examinations of Updated through direct 29 the Committee of nuclear and Annually uploading energy control and compliance
The registry of examinations of Updated through direct 30 Annually the Committee of public health uploading
The registry of examinations of Updated through direct 31 the Chief army-medical Annually uploading department
The registry of examinations of Updated through direct 32 Annually the State revenues department uploading
The registry of examinations of Updated through direct 33 Annually local state executive bodies uploading
State support
Through official Akimat’s 34 Business roadmap Biannually request
Through official Akimat’s 35 Agribusiness Biannually request
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Through official Akimat’s 36 Koldau information system Quarterly request
Through official Akimat’s 37 Other Agrisector instruments Biannually request
Procurement
The registry of suppliers of Through official Akimat’s 38 «Samruk-Kazyna» national Annually request fund
The registry of procurement Through official Akimat’s 39 contracts «Samruk-Kazyna» Annually request national fund
The registry of Subsoil users’ Through official Akimat’s 40 Annually procurement request
The registry of procurement Through official Akimat’s 41 Annually contracts of Subsoil users request
Other
Updated through direct 42 The registry of issued licenses Annually uploading
Financial statements’ Updated through direct 43 depository (The registry of Annually uploading companies of public interest)
Parameters of electricity Through official Akimat’s 44 consumption by entities Annually request (utilities)
12. In February 2019 the Akimat fully accepted the new version, but at the same time asked for several other changes: a. add data on taxes paid by all registered legal entities and individual entrepreneurs for the period including 2018; b. establish simple user-friendly first page and set the current front page with all tables and filters into the second layer by linking it to the first page. First page should have at most 3-4 buttons that would simplify usability of the database for all types of users; c. to provide third party opinion on the database with an international background and expertise in the field of electronic databases; d. to assess the possibility of establishing background for the Registry’s spin-off into the CRM system.
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13. Technical adjustments (a, b) were made through by April 2019. For the rest (c, d) ADB hired an international consultant on SME database assessment Jose Luis Cervera, who assessed technical and functional characteristics of the database. Apart from that, his assignment included assessment of data relevance and validity, verification of usability of existing analytical tools, assessment of the possibility of implementing a CRM1. Jose Luis Cervera finalized his work by October 2019. His findings, results of database assessment and recommendations were used to enhance the SME database.
14. On July 2019, the Akimat requested ADB to launch pilot test of the SME database among Akimat’s employees through several use cases. Apart from use cases, continuous feedback and remarks from Akimat’s associates who tested the SME database provided additional tasks for adjustments of the SME database. The main objective was to convert the SME database into daily operational instrument for the Akimat.
15. The format and contents of use cases for the Pilot test of the SME database provided by the international consultant on SME database assessment Jose Luis Cervera.
16. Three Akimat’s employees were assigned for pilot testing of the SME database from the Department of Industrial-Innovative development (DEIID) and Department of economic and budget planning of the Akimat. They provided comments and remarks given their needs. Received feedback allowed software developers to enhance various components of the SME database platform and its functionality by 10 of December 2019.
17. The SME database transformed from regular registry to actual analytical tool for the Akimat. All valuable information has been integrated on each and every entity that operate in the region.
4. Action plan 2018–2022 for entrepreneurship and SME development in Kostanay region
18. The third phase of the TA was expected to produce a roadmap and action plan for the Kostanay region to promote SME and entrepreneurship development in the region. In order to form these strategic documents ADB agreed with NAC Analytica of the Nazarbayev University through Knowledge Partnership Agreement to organize field research activities in Kostanay region, including: a. the survey of more than 2,000 SMEs; b. town-hall meetings for stakeholders to discuss key challenges and opportunities related to SME and entrepreneurship development in the region.
19. The results of both activities are the following
a. The survey
i. Brief description of the methodology
20. The total sample size was 2026 respondents. The sample was a representative sample, formed from the total aggregate of small and medium-sized enterprises of the region. The sample was formed using the method of stratified probabilistic random sampling, and it was also indirectly stratified by types of economic activity and districts of the region.
1 CRM – Client Relationship Management
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21. At first, the general population was clustered on a territorial basis - all cities and districts of Kostanay region were divided into 3 zones depending on a distance from the main city – Kostanay city. The following three zones were formed: Zone 1 - Kostanay city, Lisakovsk city, Rudnyi city, Altynsarin district, Auliekol district, Kostanay district, Mendykarin district, Taranov district, Fedorov district. Zone 2 - Denisov district, Kamystin district, Karabalyk district, Karasu district, Naurzum district, Sarykol district, Uzunkol district. Zone 3 - Arkalyk city, Amangeldy district, Zhangeldy district, Zhitikarinsky district. Secondly, the following stratification was carried out inside each zone - by the organizational form: 1) legal entities, 2) individual entrepreneurs and peasant agriculture, by the size of an entity: 1) up to 30 people, 2) from 31 to 100 people, 3) from 101 to 250 people. Therefore, 18 strata were formed – these are 3 territorial zones by organizational form and size of entities. Lastly, to determine the number of companies in each stratum, the free allocation method was applied, which was a compromise between proportional distribution (assumes optimal estimates at the level of the region as a whole) and equal distribution (assumes optimal estimates in terms of territories).
ii. Key findings
22. Most entrepreneurs are focused on the market within the boundaries of their settlement. Only one in ten SMEs has cooperation with other regions of the country. At the same time, despite the proximity to Russia, the export in this area is practically non-existent.
23. Only about 10% of companies are engaged in expanding their business. Companies that are unable to expand their business explain this by a lack of finance, high competition, and low consumer demand.
24. SMEs of the region do not borrow from financial institutions - only 15.7% of companies have loans. The principal borrowers are companies from agriculture and trade sectors. The share of borrowers, as well as the need for borrowed funds, increases with distance from the regional center. At the same time, borrowed funds go not so much to business development but to maintaining current activities and cover working capital.
25. In the region, lack of awareness of existing state support programs remains given the level of only 5% of SMEs that use state support instruments in the region. However, those that participate in state programs express satisfaction with support and more often than others record revenue growth over the past year. “Business Roadmap - 2020” and “Agribusiness - 2020” can be marked as the most effective programs, while participants in the “Kos Koldau” program2 were less satisfied.
26. In general, entrepreneurs of the region, especially from the third territorial zone, note that they receive little assistance from state bodies. Businessmen express the most significant dissatisfaction with land relations department of the Akimat, the regional tax revenue department, and the Damu fund, as they most often encounter barriers when buying land, in taxation periods, in preparing documents for participating in state support programs, and also in obtaining loans.
27. As to the entrepreneurial activity of the region, despite the positive attitude to entrepreneurship and the aspirations to do business, the region has a rather low entrepreneurial
2 «Kos Koldau» – regional program for business development support and is applied only for entities from Kostanay region
9 potential. At the same time, a significant part of existing entrepreneurs engage in business activities in the absence of other opportunities.
iii. Competition and market opportunities
28. A high level of competition is represented in such types of activities as trade, transport and warehousing, as well as other services. The lowest competition indicators are observed in agriculture and construction.
29. Almost all SMEs are focused on the market of their settlement, while only a third of companies sell their products, goods or services to other districts of the region, only one in ten - to other regions of the country. Despite proximity to the border with Russia, only 6.7% of SMEs are engaged in export. The vast majority of Kostanay SMEs indicated that they did not export their products, goods, or services (93,3%). Among the remaining 6,7% of enterprises, the majority indicated Russia as a foreign destination for their goods or services (5,8% of all SMEs). Another half percent was distributed in other destinations, among which were other CIS3 countries (0,6%), China (0,4%), European countries (0,4%) and other countries of the world (0,6%).
30. More than half of all entrepreneurs encounter high competition, operating mainly in the fields of trade, transport and warehousing, as well as other services. When participating in procurement, the main obstacle for entrepreneurs is the delay in payment by a client, complicated requirements for suppliers, as well as lack of communication and excessive bureaucratic procedures.
iv. Infrastructure
31. Entrepreneurs of Kostanay region see mobile communications, the internet and electricity as of the highest importance. The importance of roads, availability of commercial premises, and water supply were also stated. At the same time, the quality of roads and water supply remains a significant problem for SMEs in rural areas of the region.
v. Possible obstacles to obtaining external finance
32. The main reasons are high interest rates (46,2%), the bureaucracy and red-tape (26,8%), as well as the lack of valuable collateral (25.8%). In addition, short period of a loan (12,0%), poor credit history or its absence (6,6%) and insufficient knowledge to prepare the required documentation (3,6%) were noted as obstacles. A quarter of entities applying for loans (25,8%) spoke about the absence of obstacles.
33. The survey revealed that only 15,7% of small and medium-sized businesses have loans. In the context of territorial zones, there is an increase in the share of borrowers as we move from the regional center to other districts. Among the industries, the largest number of borrowers are observed in agriculture, trade, transportation, and warehousing, as well as other services.
34. The main source of financing the economic activities of SMEs are commercial banks. Approximately one in five entrepreneurs used the services of microcredit organizations, and the same amount received financial support from the state. Moreover, entities from the second and third zones use support from the state.
3 CIS – Commonwealth of Independent States
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35. The share of long-term loans issued to SMEs is low – only a quarter of loans were issued for more than five years. Most of the borrowed funds are used to support current business activities, that is, to replenish working capital, including the purchase of raw and other materials, provision of third party service providers, salary and taxes. High interest on loans, the bureaucracy, the red tape, as well as the absence of collateral, hinder access of SMEs to finance.
vi. State regulations and institutions (business environment)
36. First, the level of interaction between government bodies and business is extremely low. Therefore, about 40% of surveyed entrepreneurs indicated a lack of assistance from government agencies in supporting activities. It should be noted that entrepreneurs from the third zone indicated communication and support from the state as a major problem. Second, according to entrepreneurs, the activities of some institutions remain ineffective. Most often, entrepreneurs are not satisfied with the work of the Land Relations Department of the Akimat, regional tax authorities, the Damu Fund, as well as the activities of commercial banks and microcredit organizations. SMEs face barriers in purchasing the land, taxation, paperwork for participation in state support programs, as well as in obtaining loans. Third, tax administration problems, inconsistency and instability of the legislation, and the difficulty of obtaining permits, licenses, certificates, other documents impede business development in Kostanay region. This suggests that in order to improve business climate, more efforts are needed. However, most of those efforts are to be made on the national level and regional bodies cannot affect the situation.
37. At the same time, according to the survey, state inspections by authorities were significantly reduced. Thus, over the past year, only a quarter of surveyed entrepreneurs have undergone inspections by state bodies, which is most likely due to the introduction of an institution for preventive control in place of unplanned inspections. Inspections most often affected entrepreneurs from the third territorial zone, with annual revenues of over 20 million tenges.
a. The town-hall meetings
i. Parameters
38. Time period: Arkalyk - October 1, duration 2 hours; Kostanay - October 2, duration 2 hours; Zhetyqara - October 3, duration 2,5 hours; Lisakovsk - October 4, duration 3 hours.
39. The discussion revolved around the results of the Mass survey organized earlier in July- August period in which several preliminary hypothesizes tested and some barriers (and new opportunities) identified. The activity from local entrepreneurs and organizations wasn't that high, however organizers managed to get feedback from entrepreneurs and listen to some real cases justifying key findings. Specifically, the main conclusion was that entrepreneurs’ understanding of barriers to business development in the region, among which are «Access to finance», «Access to human capital», «Access to infrastructure and markets» are rooted in the geographical disposition of settlements in which respondents, entrepreneurs reside.
ii. Key takeaways
Lisakovsk & Zhetygara 1) diminishing population which is reflected on structural misbalance of labor market, absence of quality personnel for local employers; 2) small market and low level of diversification of the economy;
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3) high deterioration rates in the city hard infrastructure, including all communal networks; 4) high deterioration rate of fixed assets, especially in the manufacturing sphere; 5) absence of innovation activities among local entities and entrepreneurs; 6) close proximity and transport connectivity to densely populated Russian urbanized territories and long distance to Kazakhstan counterparts make the region donor region of people for Russia. Those who haven’t moved to Russia work there on rotation. All youth population 17-24, both Kazakh and Russian speaking, leave to Russia; 7) disparity with other regions in terms of social infrastructure availability; 8) bad condition of road infrastructure; 9) Zhetygara is the dead end for the railroad; 10) export of locally produced goods to Russia is close to impossible. Artificial, locally originated standards, accompanied by massive inspections of municipal authoritative bodies and border control do not allow producers from Kostanay region to freely sell goods in Russia. Arkalyk 1) diminishing resource base of bauxite ore (3-4 years) will destroy the economic base of Arkalyk; 2) small market and low level of diversification of the economy; 3) dependence of local budget on transfers from the national budget; 4) terrible deterioration rates in the town’s hard infrastructure, especially water supply and communal networks; 5) no potential sources of economic growth, neither of diversification nor innovation; 6) poor transport connectivity with all neighboring territories and major cities, and total bad conditions of road infrastructure; 7) no sustainable sources of water and electricity supply; 8) deterioration of housing fund, almost no new building are built, the rest is old; 9) high level of fatigue among local population and high expectations (patronal) from the state. External locus of control, dependence on someone else not on own resources.
5. Training and capacity building programs
40. For the delivery of the TA’s fourth phase the experienced international consultant Liam Wilson was engaged. The consultant delivered training sessions on three topics over a four-day period in Kostanay for various audience groups from 3 to 6 of December 2019.
Table 3: Topics and participant groups
№ Learning sessions Trainees’ groups
1. Sales and marketing Private entities (SMEs)
2. Digital public services Akimat’s employees
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3. Financial literacy Private entities (SMEs) and local financial institutions (LFIs)
41. The Capacity Building Program (Workshop) involved interactive discussions and activities among all participants regarding their existing business situations and challenges and focused on addressing bottlenecks for the development of SME and entrepreneurship in the Kostanay region. 42. During the four days, an average of forty participants per session attended the Workshop. On Days 1, 2 & 4 the vast majority of participants were SME entrepreneurs and commercial bankers from commercial banks. Day 3 consisted primarily of government officials from the Akimat and regional state bodies. 43. Apart from training sessions the Kostanay regional challenge for local tech entrepreneurs (“the Hackathon”) was organized. It took place over two days, during the 3rd and 4th December 2019 in Kostanay University of Engineering and Economics (KINEU). One hundred and thirty three people registered of which eighty people participated. Twenty five teams were then established. Eight teams were eliminated during the first phase. Overall, seventeen teams prepared solutions for the given challenges in the following fields: a. Smart city (e.g. communication between local residents and the Akimat, feedback mechanisms, -bluetooth tracking devices for real connectivity); b. EdTech (e.g. provision of electronic registration and navigation for prospective students, -solutions for disabled prospective and current students); c. Entrepreneurship &Tourism development in Kostanay region.
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B Context Kostanay region at a Glance 1. Overview of the Regional Economy Population: 868,524 (ranked 10th in 44. The gross regional product of Kostanay region in 2018 was country) Population density: 4.5 person/km2 2,022 billion tenge (Table 4). (compared to country average of 6,6 person/km2 ) Table 4: Gross Regional Product Major cities: • Kostanay (248,336 population) 2014 2015 2016 2017 2018 • Rudniy (129,723 population) • Arkalyk (40,365 population) Nominal gross 1,395 1,378 1,522 1,787 2,022 • Lisakovsk (40,235 population) regional prod. (billion • Zhetykara (34,548 population) tenge) Natural zone: steppe / forest-steppe 2 Change compared to 3.4% -1.2% 9.5% 17.4% 13.1% Land: 196,000 km , 92.4 % agricultural previous year land (68% pastures, 32% arable land) Source: Committee of Statistics, Ministry of (nominal) National Economy, Republic of Kazakhstan.
Change compared to 2.7% -3.5% -2.0% 4,6% 7,6% previous year (real) Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
45. The region’s contribution to the country’s gross domestic product (GDP) declined since independence more than three times (11% in 1991) and in 2018 constitutes only 3.4% of the GDP of Kazakhstan, which is significantly lower than the regions’ average of 5.9%, and lower than its 4.9% share of the national population. The region falls behind capital and resource-rich leaders, such as Almaty and Nur-Sultan cities, Atyrau and Karaganda regions.
46. The Kostanay region’s modest nominal GRP results in a relatively low GRP per capita ranking 10th nationwide (Figure 1).
Figure 1: Gross Regional Product per capita by region (2018)
0 2,000 4,000 6,000 8,000 10,000 12,000 Atyrau region Almaty city Nur-Sultan Mangistau region West Kazakhstan Pavlodar region Karaganda region Republic of Kazakhstan Aktobe region East Kazakhstan Kostanay region Akmola region Shymkent city North Kazakhstan Kyzylorda region Almaty region Zhambyl region Turkestan region
Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan. 14
47. The most important sectors of the economy in Kostanay are industry (of which manufacturing has a 56% share and mining has a 38% share), trade, agriculture, and transport and warehousing (Table 5). As shown in Figure 1, agriculture and transport are more important for Kostanay region than for Kazakhstan as a whole.
Table 5: Structure of Gross Regional Product by Economic Sectors (2014–2018) Sector 2014 2015 2016 2017 2018 Industry 25% 20% 25% 24% 25% Wholesale and retail (trade) 13% 15% 18% 16% 16% Agriculture, fishery and forestry 12% 12% 14% 12% 12% Transport and warehousing 11% 13% 14% 12% 12% Other services 20% 23% 11% 21% 19% Net taxes 6% 5% 6% 5% 6% Construction 6% 6% 5% 5% 6% Education 4% 4% 4% 3% 3% Healthcare and social services 3% 2% 3% 3% 2% Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
Figure 2: Top 10 Sectors in Economy of Kostanay region in comparison to Kazakhstan (2018)
Figure 1. Top 10 Sectors in Economy of Kostanay Region (2018)
18% 16,8% 15,6% 16% 14,9% 13,8% 14% 11,7% 11,6% 11,4% 12% 9,4% 9,7% 10% 8,2% 7,8% 8% 6,7% 5,9% 5,7% 5,3% 6% 4,4%
4% 2,1% 1,5% 2% 0% Trade Transport and Agriculture, Manufacturing Mining and Real estate Net taxes Construction Public warehousing fishery and quarrying activity Administration forestry
Kostanay region Republic of Kazakhstan
Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
48. Over the past 18 years, the volume of gross regional product (GRP) has increased 13 times. However, Kostanay’s share of gross domestic product has declined from 6.2% to 3.3% over the same period (Figure 3).
Figure 3: GRP of Kostanay Region from 2000 to 2018 (billion tenge) and Share of Kostanay Region in National GDP (%)
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2,500 7.0% 2 069 6.1% 6.0% 2,000 1 850 5% 5% 5% 5.0% 5% 1 522 4% 4% 4% 4% 1 348 1 395 1 378 1,500 4% 4.0% 4% 4% 4% 1 134 1 1514% 4% 3% 3.2% 3.4% 3.3% 1,000 857 3.0% 704 724 560 2.0% 387 500 272 323 159 172 185 235 1.0%
0 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
GRP of Kostanay region Share of Kostanay region in National GDP
Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
49. The largest contributor to the growth of the GRP of Kostanay region has been the manufacturing sector. The mining sector has not been an important contributor in terms of GRP growth.
50. Kostanay region has 5,143 thousand hectares of crop acreage (which is 23% of Kazakhstan’s total crop acreage). Crop production remains the main economic specialization of the entire region. While wheat production dominates the crop sector, the production of oil crops has increased almost six times in last two decades as part of the region’s agricultural diversification.
Figure 4: Contribution of Economic Sectors to Changes in Gross Regional Product of Kostanay Region (%)
15.0 Growth 10.0
5.0
-
- 5.0
- 10.0 Decline - 15.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Agriculture Manufacturing Construction Trade Transport and warehousing
Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
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51. The region is rich with natural resources. There are about 400 deposits of mineral resources discovered in the region. Most of them (234) are in the subsector of construction materials; however, the region also has important deposits of iron ore (18), bauxite (22), gold (7), and coal (10). Extraction of iron ore is the dominant industrial sector. The manufacturing industry is largely oriented towards the domestic market; this includes the sectors of food processing (51%), machinery production (25%), and metallurgy (15%). The share of other sectors is negligible.
52. The region has comparative advantages, including its geographic proximity to large Russian markets and low labor costs compared to adjacent regions in Kazakhstan and Russia. The Kostanay region could serve as a transportation and logistics hub between Russia and other parts of Kazakhstan. It has a solid track record in attracting investors in the mining and agricultural sectors. However, other factors hinder the region’s economic development. These include (1) low quality transport infrastructure, especially poor roads at the regional and district levels; (2) low population growth compared to other regions (Figure 5); (3) high electricity and gas prices compared to other regions; (4) the region’s dependence on the mining and agricultural sectors; (5) the region’s comparatively small share in the country’s total SME output (Figure 32); and (6) the region’s low ranking in terms of business climate, especially administrative regulation, technology and production and state support.4
Figure 5: Population Growth Rate in Regions of Kazakhstan per 1,000 people (2018)
30.0 25.2 23.7 25.0 22.9 22.3 21.5 18.9 18.3 20.0 17.8 16.3 14.6 15.0 11.8 11.6 10.0 7.0 6.9 6.0 5.5 3.2 5.0 1.1 0.0
Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
SUMMARY: The main driving force of the regional economy is the extractive industry, including mining and agriculture sectors. Both produce global commodities, sold to other countries and, thus, highly dependent on international market conditions. The large share of trade and transport and warehousing sectors should not be misleading. Economic activities of regional entities in these fields serve distributive role in import distribution both within Kostanay region and for the rest of Kazakhstan. Manufacturing and tradable activities5, especially in professional services, are underdeveloped to diversify the economy and become competitive on the country and macro regional levels. Food processing and machinery are capital intensive so they need long-term money for becoming dominant at least on the country level. By now adjacent huge Russian market is not an opportunity but rather a threat and pose a risk for local entities. The risk that has already
4 National Chamber of Enterpreneurs “Atameken”. 2019. Business Climate of Kazakhstan Report. 5 Tradable goods and services are export oriented representing competitive sectors of the regional economy.
17 unfolded. There is a need for new sources of growth. The intensification of innovation activities and indirect support of regional production companies must be in focus of regional authorities.
2. Employment in the region
53. Demographic trends of recent years affected employment situation of the region. Economically active population (EAP) accounted for 58.7% (513,000) of the region’s total population and decreased since 2014 by 1.4%. However, unemployment level dropped from 5% to 4.8% from 2014 to 2018. Mainly it is attributable to wage workers which grew from 321 thousand (65% of employed population) to 332,000 people (68%).
Figure 6: Share of wageworkers in regions of Kazakhstan (2018)
100% 93.0% 92.5% 92.2% 91.1% 89.1% 85.4% 90% 84.3% 76.0% 80% 72.8% 72.2% 70.5% 68.5% 67.9% 67.1% 65.5% 70% 64.4% 63.2% 60% 54.4% 50% 40% 30% 20% 10% 0%
Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
54. Despite the diminishing share of self-employment in Kostanay region between 2014 and 2018 (from 35% to 32% of EAP), it is relatively high comparing to other regions. Region ranked 6th highest among 17 regions with leading Turkestan region (43.2%).
Figure 7: Share of self-employed in regions of Kazakhstan (2018)
18
Almaty city 6.9% Average indicator at OECD Nur-Sultan city 7.0% 30 countries -15,6% Mangistau 7.2% Karaganda 7.3% Atyrau 9.3% Pavlodar 13.7% Aktobe 13.9% RoK 22.5% North Kazakhstan 24.1% Almaty 26.0% East Kazakhstan 28.0% Kostanay 30.1% Shymkent city 30.5% Akmola 31.1% Kyzylorda 33.5% West Kazakhstan 34.6% Zhambyl 34.9% Turkestan 43.2%
55. The region has less than average unemployment among youth (age of 15-28) and can be explained by the demographics with low share of youth.
Figure 7: Structure of employed in Kostanay region
500 31 65 62 62 64 63 400 62 63 61 62 64 300 84 86 83 91 96 200 75 80 86 92 106
100 183 173 167 154 128 0 2014 2015 2016 2017 2018
Agriculture, fishery and forestry Wholesale and retail (trade) Other services Industry Education, Healthcare and social services Transport and warehousing
Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
56. Most of the population in the region employed in agriculture (26% in 2018), however its number and share decreased since 2014 by 30% (from 183,000 to 128,000 people in 2018). On the contrary, employment in trade since 2014 expanded by 41% to 106,000 in 2018 reflecting urbanization trends. Industry, education, and health sectors have not experience significant changes (Figure 8).
Figure 8: Employment by sectors of economy in regions of Kazakhstan (2018)
19
70% 60%
50% 22% 14% 9% 12% 13% 18% 40% 12% 15% 8% 13% 17% 13% 15% 30% 8% 13% 10% 9% 23% 17% 5% 8% 17% 25% 10% 24% 20% 27% 32% 20% 16% 30% 28% 26% 11% 26% 23% 23% 21% 10% 17% 15% 12% 9% 9% 8% 7% 5% 7% 0% 3% 2% 0% 0% 0%
Agriculture, fishery and forestry Industry Wholesale and retail (trade)
Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
57. Among other regions, Kostanay is one of the highest with share of employment in the agriculture sector and third in the trade.
Figure 9: Employment by the type employment in districts of Kostanay region (2018)
80 000 70 000 60 000 17 976 50 000 40 000 30 000 14 880 52 449 8 702 20 000 6 540 4 903 8 052 5 769 6 412 25 295 6 595 5 017 4 071 5 917 10 000 17 210 3 756 19 981 6 462 15 333 1 811 4 436 15 452 2 289 7 549 1 892 10 758 9 338 9 503 2 245 7 246 9 390 8 990 9 819 0 5 921 3 876 3 763 5 923 4 191
wage workers self-employed
* Taran district was renamed to the District of Beimbet Maylin in 2019 Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan. 58. On the district level, the highest unemployment is in urban settlements: Arkalyk (5.6%), Rudnyi (5.3%) and Lisakovsk (5.1%). Lisakovsk is also characterized by the highest rate of unemployment among youth (4.5%). Majority of the population employed in agriculture are in Karasu (70%) Uzynkol (66%) and Sarykol districts (59%) and these districts are concentrated in the northeast border with North Kazakhstan region. Population in Kostanay city and its satellites such as Rudnyi and Lisakovsk are among highest with the most EAP employed in services and industry sectors (Table 6).
Table 6: Structure of employment by major sectors by districts (2018)
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Agriculture, forestry Industry& City/District Services and fishery Construction
Karasu d. 70% 4% 26% Uzynkol d. 66% 3% 31% Sarykol d. 59% 7% 34% Denisov d. 58% 9% 33% Fedorov d. 55% 7% 38% Mendikara d. 53% 7% 40% Nauryzym d. 52% 3% 46% Amangeldy d. 51% 3% 46% Kamysty d. 51% 9% 41% Altynsarin d. 50% 5% 46% Karabalyk d. 46% 12% 42% Beimbet Maylin d. 43% 14% 43% Auliyekol d. 42% 11% 46% Zhangeldy d. 31% 5% 64% Kostanay d. 31% 15% 54% Akralyk city 28% 12% 61% Zhetykara d. 27% 25% 49% Lisakovsk city 9% 40% 51% Rudnyi city 5% 32% 63% Kostanay city 3% 19% 78%
59. The highest share of self-employment is registered in Amangeldy (53%) and Sarykol districts (47%) and lowest in industrially dense Lisakovsk (22%) and Rudnyi cities (26%) as well as in Altynsarin district. Self-employment is highest in agriculture (on average 61%) and lowest in industry and construction sector (6%), service sector accounts for 22% the region.
60. Average nominal wage in Kostanay region is 126,000 tenge, which substantially less than average for the country (163,000) and among lowest among all regions. Real growth of the workers wage in last 5 years had been insignificant (0.7% per year).
61. The large share of employed in agriculture is reflected on instability of employment of those involved in seasonal work in this sector. Gradation by type of territory shows that self-employment problem belongs to rural area, however there are cities in which self-employment reaches almost half of economically active population (EAP). In Kostanay region, 24% of EAP are self-employed in urban settlements, whereas 36.6% of EAP are self-employed in rural area (for Kazakhstan: urban area – 14.5%, rural area – 33.4%).
62. If we look at productivity level and share of self-employed in the region then we would see that the share of self-employed is the highest in trade sector – 51.4%, however this indicator is accompanied by low productivity level – 3.1 million tenge per one employee. Most probably all those self-employed are individual entrepreneurs.
63. The structure of self-employed given the level of education in Kostanay region: higher or incomplete higher education - 21%, secondary level education – 44%, primary education – 35%. Lack of official wage workers is a signal that there are not enough competitive entrepreneurs in the region. Self-employed are those that cannot permeate the level of small business and, therefore, cannot expand operations and hire permanent wage workers.
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64. The proxy indicator for understanding the level of entrepreneurship development in the region is the number of acting entities per 1,000 EAP. If we combine only acting legal entities then in Kostanay region there are 20 entities per 1,000 EAP, whereas in the country the average is 22.1 entities per 1000 EAP. For OECD 30 top countries the average is 65 entities. If we take for consideration acting individual entrepreneurs then the situation in Kostanay region is the one depicted in Figure 10.
Figure 10: Density of economic subjects in the Kostanay region (2018)
250 45 40 200 35 30 150 25 20 100 15
50 10 SMEs 1000peopleperSMEs
5 Legal entities per 1000peopleentitiesper Legal 0 0
Economic density, SMEs per 1000 people Economic density, legal entities per 1000 people
65. In Figure 10, we see which districts of Kostanay region are marked with the domination of individual entrepreneurs. These figures are accompanied by large share of agriculture sector in gross value added. Either these districts provide lower number of opportunities in terms of market development or business climate conditions are inferior. Those will be described in the following chapters.
53. It is critical to understand the level of income in different regions to see discrepancies and if those differences influence migration flows. The most commonly used parameters are structure of income and expenses, the level of differentiation and inequality, the poverty level. All those are formed by the Committee of Statistics of RoK on census of 11,720 households. When we compare figures on regions, large cities and resource regions stand out. If we put income level with money spent on consumption, for some reason nominal income per capita is 1.8 times higher than actual consumption. This may mean that all income of respondents were recorded correctly, but not all sources of income accounted for or that there is a large amount of money that went on savings. The latter is less likely.
Figure 11: Estimated nominal income per capita in comparison to consumption volumes (2018)
22
200 4.5 180 4 4 160 3.5 140 3 120 2.9 2.3 2.5 100 2 2 80 1.8 1.5 1.7 1.8 1.7 1.8 1.5 60 1.4 1.6 1.6 1.5 1.3 1.2 1.2 1.3 40 1 20 0.5
0 0
capita capita (in thousand tenge)
income spent on consumption(ratio)
Estimated nominal population's income per Correlation Correlation nominal ofincome per capita to Estimated nominal population's income per capita (Nominal income per capita), in thousand tenge (2018)
Correlation of Nominal income per capita to income spent on consumption (through survey of 11720 people), (2018)
Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan 54. There are four basic sources of income in Kazakhstan – salary, pensions, social compensations (aid) and entrepreneurial income. The first two are declared officially both by business and the government. Out of all estimated income of 20.4 trillion tenge, only 9.3 trillion tenge comes from salary nationwide, which is less than 46% (5.1 million employed people). Therefore, salary does not form even half of all population income. Social compensations were amounted to 1.8 trillion tenge that is 9% out of total income (around 3 million recipients). The rest 46% comes from other sources. For Kostanay region these figures are even more unusual. 55. Understanding structure of income sources is not an easy task, however some implications are clear. Income that comes from employment is not the biggest source. Secondly, other per capita income sources are either higher than salary or at comparable levels. Which means that setting salary based on regional average is not a good practice.
Figure 12: Households’ income structure in regions of Kazakhstan (2018)
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100% 90% 31% 32% 34% 80% 38% 43% 42% 44% 46% 47% 47% 47% 47% 48% 49% 49% 70% 58% 58% 5% 7% 4% 67% 60% 4% 11% 11% 50% 14% 9% 9% 10% 12% 15% 10% 9% 12% 40% 12% 13% 65% 62% 62% 30% 58% 10% 46% 46% 46% 45% 20% 42% 41% 38% 43% 42% 42% 39% 31% 29% 10% 23% 0%
Salary Pensions and social payments Other sources
Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan
Figure 13: Comparison of average monthly salary and average monthly income of people who are not employed or receive any payments from the state (2018)
93 Turkestan 100 134 Shymkent city 106 136 Zhambyl 104 143 Kyzylorda 125 144 Almaty 110 156 Kostanay 126 166 East Kazakhstan 135 168 Aktobe 126 177 Akmola 115 179 North Kazakhstan 104 213 RoK 153 229 Karaganda 139 230 Pavlodar 129 248 West Kazakhstan 145 349 Mangistau 245 692 Almaty city 186 1303 Nur-Sultan city 202 1563 Atyrau 272 0 200 400 600 800 1000 1200 1400 1600 1800
Average monthly income of "other groups" of people (excluding employed and retired/social) Average monthly salary of employed
Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan
56. The inequality can be calculated by Gini index, but there are other sources of information. The analysis shows that average parameters of income in many regions, including Kostanay
24 region, are not equal. Apart from direct comparison, the indirect implication signifies that a large amounts of salaries are given at a minimum required level. That is the confirmation of massive evasions of taxes payments which are due to be paid by employers.
SUMMARY: The majority of economically active people are employed in agriculture and trade sectors. However, these sectors are marked with low productivity levels. The highest productivity levels are observed in urban areas of the region, which is explained by concentration of mining and manufacturing companies in Kostanay, Rudniy and Lisakovsk. On the other hand, the largest number of self-employed is from rural area with the main activities in agriculture. Like in any other region income that comes from official salary does not represent the major source of income for Kostanay region’s residents. This parameter is less than 40% of all income received by the regional EAP. The share of other sources of income has positive correlation with the share of self- employed, plus there has been growth of pension and social payments in Kostanay region. The latter signifies either increase in the number of elderly people and vulnerable groups of people or that social policy in the region is counterproductive and inefficient. At the same time high quality of life is a critical factor in achieving economic development because economic growth requires an educated and creative workforce, which in turn requires, in addition to competitive income, a favorable environment for high livability conditions. Therefore, it is important to monitor the main parameters on quality of life, including income level, opportunities to start entrepreneurial activity, etc.
3. Lending Trends and Constraints to Growth
57. Money flows into the Kostanay region have increased more than 65% in 2017 (Table 7) and dropped 11% in 2018..
Table 7: Sources of Finance for Legal Entities in Kostanay Region and Foreign Direct Investments (money Inflows) Sources of Financing/ Indicator 2015 2016 2017 2018 Second Tier Banks Number of regional branches of 14 14 14 14 STBs Volume of loans to private legal 160,467 142,075 95,957 million 96,927 million entities million tenge million tenge tenge tenge
Including those through 22,558 million 24,708 million 3,810 million 17,145 Damu Fund tenge tenge tenge million tenge Micro Financial Organizations Number of active MFIs (including microcredit organizations 30 29 29 29 and credit unions) Volume of loans to private legal 1,384.7 million 1,549.2 million entities tenge tenge Investments in Fixed Capital Volumes 162,976 178,452 million 202,289 249,340 million tenge tenge million tenge million tenge Gross foreign direct investment $327.6 $-175.2 $14.4 million $358.1 million million million
MFI = microfinance institution, STB = second tier bank. Source: National Bank of the Republic of Kazakhstan.
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58. The key sources for working and fixed capital for private entities in Kostanay region are private entities’ own funds (money for accumulation, consumption, and reserves) and second tier banks’ loans. Despite the drastic increase in 2018, the volume of foreign direct investment has little or no influence on the local economy because it is concentrated in the mining sector. Globally, foreign direct investment is considered to be one of the major sources for regional economic development. However, in Kostanay region it is not because it is limited to the mining sector only.
a. Investments in Fixed Capital
59. Prior to the global financial crisis and the decline in commodity prices (i.e., from 2000 to 2008), investment activities in Kazakhstan had been extensive and growing in scale, and included sectors other than the oil and mining sectors. Annual average growth rates of investments in fixed capital reached double digits. However, shortly after that time growth rates declined significantly after 2008.
60. The slowdown in the national economy impacted Kostanay region in all aspects. Investments in fixed capital increased by 30% in 2018 in nominal prices, and amounted to 250 billion tenge or 2.2% of the national aggregate (ranking next to last among all regions).
Figure 14: Investments in Fixed Capital in 2014 and 2018 (million tenge)
Atyrau region 1 129 627
646 634 Nur-Sultan 1,067,455 511 598 Almaty city 732,930
Shymkent city 588,034 453 209 Almaty region 578,720 526 249 Aktobe region 516,893 532 239 Mangistau region 504,649 345 943 East Kazakhstan 494,597 411 852 Karaganda region 489,030 270 092 West Kazakhstan 450,382 353 112 Pavlodar region 411,958 262 583 Kyzylorda region 332,655 449 385 Turkestan region 314,114 181 328 Akmola region 278,177 208 554 Zhambyl region 264,520 192 134 Kostanay region 249,340 116 943 North Kazakhstan 214,181
2014 2018
Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
26
Figure 15: Rate of Growth of Investment in Fixed Capital, 2014–2018 (%) 140.0 127.5 113.0 123.3 120.0 108.5 110.5 106.6 113.4 106.5 109.5 100.0 84.8 80.0
60.0
40.0
20.0
0.0 2014 2015 2016 2017 2018
ROK Kostanay
Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
61. During the last 5 years, the largest shares of fixed capital investments in Kostanay region were in mining (35%) and agriculture (14.6%). Between 2014-2016, there has been a significant decline in investments in the manufacturing, transport water and power supply sectors, however by 2018 it recovered to a different extent Transport and real estate sectors bounced back the most (74% and 77% respectively).
Table 8: Investment in Fixed Capital in Kostanay Region, by Economic Sector, 2014–2018 (million tenge)
2014 2015 2016 2017 2018
Mining 55,689.1 60,728.1 72,433.1 58,412.9 86 249.5 Agriculture 19,103.8 27,262.2 34,495.3 37,324.9 36,349.8 Real estate 18,951.2 19,246.5 18,848.6 27,975.2 33,414.4 Transport 34,662.1 15,379.8 16,176.3 18,259.2 28,150.9 Manufacturing 21,580.3 12,593.6 11,246.8 18,893.3 16,141 Water supply 12,668.7 9,636.2 6,539.6 12,065.7 14,094.2 Power supply 10,962.1 3,876.5 6,073.4 12,165.2 9,662.2 Education 4,719.1 2,252.3 4,033.6 3,620.2 2,690.6 Total 192,134.3 162,976.0 178,451.7 202,288.9 249,339.5 Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
62. The share of second tier banks in investments in fixed capital does not presently exceed 4%. It declined from 18,799 million tenge in 2014 to 9,609 million tenge in 2018 (Table 19).
63. The main sources of the increases in investments in fixed capital in Kostanay region are enterprises’ own funds, whose contribution in 2018 was 70.7%, and the state budget, which had a 24.1% share in the same year (Table 9).
Table 9: Sources of Financing for Investment in Fixed Capital in Kostanay Region, 2014– 2018 (million tenge)
27
2014 2015 2016 2017 2018 mln tenge 126,909.0 122,801.3 135,799.7 136,075.8 176,324.2 Own funds share (%) 66.1 75.3 76.1 67.3 70.7 mln tenge 46,254.8 27,794.5 31,170.0 45,765.1 60,212.4 State budget share (%) 24.1 17.1 17.5 22.6 24.1 mln tenge 18,799.8 9,956.4 10,893.9 14,356.2 9,608.9 Borrowed funds share (%) 9.8 6.1 6.1 7.1 3.9 mln tenge 170.8 2,423.9 588.1 6,091.8 3,193.9 Foreign sources share (%) 0.1 1.5 0.3 3.0 1.3 mln tenge 192,134.3 162,976.0 178,451.7 202,288,9 249,339.5 Total share (%) 100.0 100.0 100.0 100.0 100.0 Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
64. Foreign direct investment is one of the main parameters by which economic development of a region is usually evaluated. In the period 2014–2018, Kostanay region attracted foreign direct investments of almost $1.4 billion. Among all regions, Kostanay region ranked 10th for the five- year period.
Table 10: Gross Foreign Direct Investment, by Region, 2014–2018 (million tenge)
Region 2014 2015 2016 2017 2018 Atyrau 1,414,142.41 1,252,799.43 2,930,202.57 2 548 766 3 454 119 Almaty city 766,101.52 503,856.42 1,614,744.85 1 304 811 1 870 695 East Kazakhstan 408,421.33 329,886.09 847,009.80 954 405 822 304 West Kazakhstan 252,018.48 256,529.10 467,448.81 398 269 405 003 Aktobe 219,635.79 67,589.82 407,570.71 630 942 121 609 Mangistau 249,123.85 41,747.74 165,198.78 217 181 463 272 Pavlodar 53,697.69 84,175.04 162,408.14 193 414 294 441 Kostanay 51,886.61 2,645.00 123,373.69 - 57 113 112 942 Karaganda 11,005.78 5,822.28 104,803.90 150 543 223 011 South 36,268.00 54,328.99 97,672.27 48 485 56 950 Kazakhstan/Turkestan Akmola - 2,043.27 2,865.22 87,302.13 24 448 55 079 Kyzylorda 55,570.69 31,076.63 71,247.36 41 613 41 203 Nur-Sultan city 104,655.55 77,875.23 71,006.19 191 234 332 639 Zhambyl 14,612.46 - 5,675.34 51,540.64 28 499 29 203 Almaty (region) 36,422.79 23,895.21 34,659.01 55 784 32 554 North Kazakhstan 1,037.11 - 2,479.52 861.31 5 872 343 Total 3,672,618.72 2,726,918.80 7,237,050.14 6 833 079 8 363 618 Source: National Bank of the Republic of Kazakhstan.
b. Second Tier Banks’ Financing
65. Principally because of the decline in commodity prices, the growth in GDP has drastically slowed down. However, growth has also been negatively impacted by problems in the banking sector.
28
Figure 16: Volume of Loans Provided by Second Tier Banks in Kazakhstan, 2014– 2018 (billion tenge)
14,000 12,000 10,000 6,119 4,583 4,698 8,000 3,594 3,682 6,000
4,000 7,342 6,016 5,756 6,153 6,121 2,000 - 2014 2015 2016 2017 2018
short term long term
Source: National Bank of the Republic of Kazakhstan.
66. In nominal terms, the volume of loans provided by second tier banks decreased from 26.7% of GDP in 2014 to 21.7% of GDP in 2018. This discrepancy shows that the economy developed faster than amounts of borrowed money in the economy. In Kostanay region in particular, the acceleration of the economy did not affect the crediting of the regional economy. GRP in Kostanay region grew by 4.6% in 2017 and a further 5.8% in 2018. In comparison, Kazakhstan’s economy grew by 4.1% in 2017 and in 2018. In 2015 the ratio of banking loans to GRP in Kostanay region was 19.7%. This indicator is lower than the average national level, but still higher than in 11 other regions of Kazakhstan.
67. In comparison, the volume of loans in Russia as a percentage of GDP in 2018 was 45%, over 50% more than in Kazakhstan. In developed countries, this ratio is even higher—often more than 100%.6 The Russian bordering regions of Orenburg, Kurgan have similar to Kostanay ratios in 2018, however Chelyabinsk had significantly higher ratios of loans to GRP (Figure 17).
Figure 17: Ratio of Volume of Bank Loans Outstanding to Gross Regional Product: Kostanay and Other Regions, 2018 (%)
6 https://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS.
29
140.0% 125% 120.0%
100.0%
80.0%
60.0% 45% 46% 40.0% 19.6% 21% 15% 20.0% 13%
0.0% RoK Russia Almaty Kostanay Orenburg Kurgan Chelyabinsk region region region region bordering Russian regions
Source: National Bank of the Republic of Kazakhstan; Committee of Statistics, Ministry of National Economy; Central Bank of Russia; Russian State Statistics Committee.
68. Overall, the financial sector in Kostanay region is weak, with bank loans equaling only 15.9% of GRP (2016). There are fourteen branch offices of commercial banks. The volume of loans credited to legal entities from 2012 through end-September 2017 period was 583.5 billion tenge. Kostanay region ranked 8th among all of Kazakhstan’s regions in terms of loans credited during this period.
Table 11: Volume of Loans Issued to Private Sector in Russian Regions Compared to Kostanay Region, 2014–2018 (million tenge) Region 2014 2015 2016 2017 2018 Orenburg region 892,110 657,525 748,120 590,064 825,132 Kurgan region 204,245 182,205 148,870 183,346 245,141 Chelyabinsk region 2,779,635 2,199,260 2,241,950 3,720,676 3,709,255 Kostanay region 125,262 97,342 98,476 273,784 278,935 Note: Data for Russian regions was converted from rubles into tenge at the following average annual exchange rates: 22014—4.76 tenge/ruble, 2015—3.61 tenge/ruble, and 2016—5.11 tenge/ruble, 2017—5.59 tenge/ruble, 2018—5.5 tenge/ruble. Chelyabinsk and Orenburg regions have larger populations (3.5 million and 2.0 million) than Kostanay region (900,000). While Kurgan region also has a population of around 900,000, it has a much higher volume of loans. Source: National Bank of the Republic of Kazakhstan; Committee of Statistics, Ministry of National Economy; Central Bank of Russia; Russian State Statistics Committee.
69. An analysis of the credit portfolio in the region signifies the dynamic growth of short-term loans. The share of credits with a maturity of more than one year in the regional total credit portfolio declined from 67% in 2014 to 33% in 2018. The absence of long-term credit is a real issue for entities and the entire economy. Today, the tenor of credit lines is at least two times less than required by acting economic entities according to annual polls conducted by the National Bank of Kazakhstan.
70. The Kostanay region’s credit portfolio is characterized by large shares for manufacturing (29%) and construction (25%). At the same time, borrowing for the agro sector from second tier banks declined from 26.5 billion tenge in 2014 to 17.5 billion tenge at the end of 2019. Loans to the trade sector over the same period declined by almost half.
30
71. The sectors with the lowest average interest rates are mining (10.6%) and logistics (11.0%). Higher average rates are observed for agriculture (13.5%), trade (15.5%), and manufacturing (16.0%).
c. Small Business Financing
72. Despite multiple state support programs for small business over more than 10 years, the share of small businesses in Kostanay region in regional GRP is low—only 22.1% in 2016. The economy of Kostanay region has developed in the last two decades because of large metallurgy enterprises.
73. An analysis of the credit portfolio of second tier banks to small business demonstrates a significant decline over the past 5 years. Whereas in 2011 the overall volume of loans to small business was 31 billion tenge, in 2016 this number had dropped to 23 billion tenge. The share of long-term loans in 2016 was 33%, which is 16 percent points lower than in 2015. On the national level, in 2016 79% of all loans to small entities were to small entities in either Almaty city or Nur- Sultan city, where the volume of loans to small entities increased by 3.5 times in 2016 compared to 2015. The weighted average interest rate of banks charged to small businesses in Kostanay region in 2018 was 9.5–9.6%.
Figure 18: Volume of Loans Given by Second Tier Banks to Small Entities in Kostanay Region (million tenge) 50,000 45,000 40,000 35,000 15,401 30,000 9,964 25,000 5,748 20,000 7,887
15,000 9,334 27,531 10,000 21,416 21,732 15,856 5,000 10,068 - 2014 2015 2016 2017 2018
Short-term Long -term
Source: National Bank of the Republic of Kazakhstan.
d. Damu Fund
74. Currently, Damu Fund serves as the operator for conditional allocation of money with different instruments within the state program for business development, “Business Road Map 2020”. There are three instruments available for business support under Business Road Map 2020: interest subsidies, partial credit guarantees, and grants. The first two instruments are administered by Damu Fund, whereas grants are approved by the Akimat but the transfer of grant funds is administered by Damu Fund. The dynamic for Kostanay region for the last three years is positive (Table 12).
Table 12: Damu Fund Performance Indicators in Kostanay Region
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Number of Loans Supported (million Subsidized and Guaranteed Year Projects tenge) Amounts (million tenge) Credit lines provided 2014 180 13,976 - under conditional 2015 183 22,558 - allocation of funds (apart from BRM) 2016 304 24,708 - 2014 157 10,308 1,925 Interest subsidies 2015 102 8,556 1,879 2016 123 20,974 2,017 2014 37 754 367 Credit guarantees 2015 68 1,254 429 2016 47 916 341 BRM = Business Road Map 2020. Source: Damu Fund.
75. In 2016, more than 50% of the support provided by Damu was for interest subsidies. Apart from the state program, there are conditional money allocation programs with the Unified State Pension Fund, the National Fund, and several donors. In 2016, more than 12% of Damu support was attributed to financial support for SMEs and women entrepreneurship program provided through two international financial institutions—EBRD and ADB.
Table 13: Indicators for All Programs Executed by Damu Fund in Kostanay Region 2015 2016 Jan.–Sep. 2017 Volume, Volume, Volume, Number million Number million Number million tenge tenge tenge EBRD (STBs) 32 1,036.1 19 1,882.3 42 3,073.0 EBRD (MFI “KMF”) 129 93.6 107 89.4 Women Entrepreneur- ship, EBRD 3 18.4 3 41.8 2 49.8 Damu-Regions 4 3,968.1 National State Fund – 1st tranche 7 1,105.5 8 815.4 6 535.4 National State Fund – 2nd tranche 15 5,085.4 15 3,822.0 12 2,351.2 National State Fund – 3rd tranche 17 3,287.1 18 6,269.0 13 1,487.8 Damu Ondyris 5 628.5 4 285.0 Conditional Allocation 2 9 165.4 Conditional Allocation 3 2 346.5 ADB–1st tranche 25 1,682.0 8 465.2 ADB–2nd tranche 23 2,484.7 3 261.3 4 210.5 ADB–3rd tranche 15 2,430.5 8 883.1 Damu Regions-III 34 2,727.1 31 2,515.6 36 2,263.4 Productive Employment and Mass Entrepreneur- 1 10.5 ship Program
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Financing of Leasing Contracts 3 23.0 5 51.1 4 115.6 Kos-Koldau 11 184.0 23 590.9 Interest Subsidies 102 8,556.1 123 20,974.2 118 9,365.8 Credit Guarantees 68 1,252.1 47 915.6 61 2,362.3 Total 349 32,366.0 439 41,006.6 437 23,388.7 ADB = Asian Development Bank, EBRD = European Bank for Reconstruction and Development, MFI = microfinance institution, STB = second tier banks. Source: Damu Fund.
e. Agro Credit Corporation (ACC)
76. This organization implements state policy in the field of financing of entities involved in agriculture and individual farmers in rural areas. The corporation is a part of “KazAgro” National Managing Holding Company. ACC has 13 branch offices around Kazakhstan. ACC has a multitude of instruments within seven state programs devoted to agricultural business development, from direct crediting of enterprises to support of leasing contracts and purchase of livestock.
Table 14: Indicators on All Programs Executed by Agro Credit Corporation in Kostanay Region in 2016 Volume, Program million tenge Financial support (credits) to agro credit unions 2,779.0 Including: Purchase of small cattle 10.1 Purchase of horses 58.1 Agro machines 19.2 Other purposes 565.3 Sybaga program (cattle) 467.3 Direct financial support of entities and farmers 4,245.3 Spring field work 3,251.7 Commercial loans 639.0 Including: Direct crediting 250.0 Purchase of small cattle 87.4 Purchase of horses 301.6 Total 7,136.8 Source: Agro Credit Corporation.
Table 15: Indicators on All Programs Executed by Agro Credit Corporation in Kostanay Region in 2017 (through 28 November) Volume, Program Number million tenge Birlik (Бірлік) 104 1,386.3 Agribusiness Kanat 2020 34 1,158.4 (Қанат)
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Zhedel Nesie (Жедел - - несие) Sybaga 9 35.4 Kulan 1 12.0 Altyn Asyk (Алтын 5 15.2 Асык) Agromachinery 2 14.0 Isker (via credit unions) 73 499.4 Isker (via MFIs) 2 313.0 Sybaga 17 204.6 Kulan 6 50.7 Agribusiness 32 705.5 Ken dala 198 7,532.8 Total 483 11,927.4 Source: Agro Credit Corporation.
f. Microfinancing in Kostanay Region
77. The contribution of microfinance organizations (MFOs) in total lending in Kostanay region is very low—only 0.8%.
78. According to the law «On microfinance organizations» (adopted 26 November 2012), the National Bank of the Republic of Kazakhstan (NBK) maintains the registry of MFOs and establishes prudential norms and the maximum annual effective interest rate that may be charged on microloans. By regulation, the NBK has provided that MFOs should have equity of no less than 30 million tenge and that the annual percentage rate (APR) on microcredits should not exceed 56%.
79. As of 1 October 2019, there are 171 active MFOs in Kazakhstan with a total loan portfolio of 277 377million tenge, according to NBK statistics. In comparison, the Committee of Statistics of the Ministry of National Economy (MNE Statistics Committee) provides data on 231 microcredit organizations and 644 credit cooperatives, with total amount of lent money of 290,946million tenge and 206,263 million tenge, respectively. Therefore, there are at least 60 microcredit organizations that provide loans to private entities, but do not file reports with NBK and may not the follow standards set by it.
80. It is not possible using NBK-published statistics to determine the regional distribution of loans provided by MFOs. However, information provided by the MNE Statistics Committee reveals that Kostanay region’s share of all of the microloans in Kazakhstan in 2018 was only 2.6%, while than 57% were issued to borrowers in Nur-Sultan and Almaty cities.
Table 16: Microloans to Legal Entities, by Region, 2014–2018 (million tenge) Region 2014 2015 2016 2017 2018 Nur-Sultan city 13,999 22,851 178,109 126,465 27,300 Almaty city 9,614 17,582 27,242 34,320 59,949 Turkestan 30,090 25,359 15,980 13,786 97 Karaganda 344 42,011 10,247 9,999 26,734 Aktobe 2,197 2,993 3,141 5,479 5,244 North Kazakhstan 2,891 2,687 3,015 4,642 6,355 Kostanay 1,458 1,385 1,549 2,961 3,965
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Akmola 915 1,569 1,390 2,885 x East Kazakhstan 415 472 823 1,850 1,515 Pavlodar 360 168 277 749 x Mangistau 94 42 168 27 31 Almaty (region) 465 359 0 450 830 Atyrau 86 0 0 20 - West Kazakhstan 229 243 0 641 737 Zhambyl 65 0 0 - 47 Kyzylorda 842 801 0 745 714 Shymkent city 15 515 Total 64,063 118,523 241,941 205,019 153,727 Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
81. The amount of microloans to legal entities in Kostanay region in 2016 amounted to 1,549 million tenge, an increase of 164 million tenge (+12%) from previous year (Figure 19).
Figure 19: Microloans to Legal Entities in Kostanay Region, 2014–2018 (million tenge)
Volume of Volume ( entities legal to microloans
million
tenge)
Number of microloansto legalentities
Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
82. Microloans are issued in small numbers and with high APRs. In 2016, the average interest rate in Kostanay region for short-term microloans was 22% and for long-term microloans was 21% (Figure 20).
Figure 20: Average Interest Rate for Microcredit Loans in Kostanay Region (Major Cities), 2014–2018 (%) 25.0 23.7 23.3 21.9 22.0 21.0 20.2 19.9 20.0 18.7
15.0 12.7 9.5 10.0
5.0
0.0 2014 2015 2016 2017 2018
ST loans LT Loans
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Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
g. Constraints to Growth
National Bank’s regulation of the banking system
83. High volumes of non-performing loans and continuing weaknesses in the banking sector have resulted in decreased long-term financing. Despite growing demand for financial resources from the private sector, second tier banks prefer to concentrate on providing retail loans and short- term loans to legal entities. The share of bank loans in Kostanay region with a maturity of more than one year decreased from 40% in 2012 to 24% in 2016 (Table 17).
Table 17: Share of Short-term and Long-term Loans in Overall Volume of Loans by Second Tier Banks in Kostanay Region, 2014–2018 (%) Item 2014 2015 2016 2017 2018 Long-term loans 19.6 45.7 24.4 26.2 33.4 Short-term loans 80.4 54.3 75.6 73.7 66.7 Total 100.0 100.0 100.0 100.0 100.0 Source: National Bank of Republic of Kazakhstan.
84. In the period from 2014–2018, the volume of short-term loans to legal entities in Kostanay region totaled 404 billion tenge, while the volume of long-term loans totaled 180 billion tenge. Throughout this period, the volume of long-term loans steadily declined, with the exception of 2015.
85. In 2018, the volume of long-term loans in Kostanay region in comparison to 2017 increased by 20.2 billion tenge or 65%, while short-term loans increased only by 18%.
86. In general, the situation with borrowing in Kostanay region reflects national trends. The volume of short-term loans issued to the economy of the country over the past 5 years exceeds the volume of long-term loans by three times.
Table 18: Loans by Second Tier Banks to Non-Banking Legal Entities in Kostanay Region, 2014–2018 (million tenge)
2014 2015 2016 2017 2018
Long-term loans 24,206 43,895 23,655 30,840 51,136 As a % of previous year’s 72.5 181.3 53.9 130.4 165.8 amount
Short-term loans 99,598 52,061 73,272 101,881 86,521 As a % of previous year’s 101.7 52.3 140.7 118.1 117.7 amount Source: National Bank of the Republic of Kazakhstan.
87. The basic source of funding for the banking sector continues to be client deposits, which constituted 77% of bank liabilities in 2018 (79% in 2017). However, because most deposits are short-term, there is an unmet demand for sources of long-term funding.
88. The NBK’s policy on inflation control also influences the supply and demand of money. One of the basic tasks of the NBK is to stabilize prices by controlling inflation. In recent years,
36 high inflation in Kazakhstan has therefore resulted in a high discount rate, which in turn has resulted in high interest rates being charged by second tier banks on loans to private sector entities.
89. As inflation slowed down in 2018 (to 5.3%), the NBK reduced the discount rate from 10.25% to its rate of 9.25% (as of January 2019). From that point, excessive liquidity began to accumulate at second tier banks, which has been withdrawn from second tier banks on a regular basis by issuing short-term notes at attractive rates. Demand for those instruments of the National Bank continues to be high. As of the beginning of 2019, 4.1 trillion tenge in these short-term notes had been issued, thereby significantly reducing excess liquidity.
90. Preliminary estimation of 2019, inflation was 5.4%. Non-monetary factors continue to influence inflation, such as: fiscal stimulus given to some companies, an upsurge in prices for imported goods and services, devaluation expectations, and weak competition among economic agents (entities)
91. In 2018, the volume of loans increased by 20%.THe growth was driven both loans to individuals (22.2%) and to legal entities (19.7%). Loans to agriculture fell by 3%, while loans to manufacturing entities declined by 14.6%.
92. At the same time, in order to support the banking system in the country, the government decided to provide support to second tier banks by adopting «The program for financial stabilization of the banking system in the Republic of Kazakhstan». At the beginning of 2017, Kazkommertsbank received 2.4 trillion tenge even before the program was launched, while later in the year several other second tier banks received a total of up to 700 billion tenge altogether in the form of subordinated debt.
93. The Program for financial stabilization of the banking system launched in the first half of 2017 implies that a few banks will get financial support from the government. It is not known whether the National Bank assessed the asset quality of second tier banks to determine which banks would get support. The actual share of non-performing loans in second tier banks is unknown. However, the recent announcement that Bank RBK’s NPL ratio now exceeds 80% suggests that the ratio is higher than the 7% figure published by the National Bank.
94. The National Bank also issued a new regulation promulgating risk management procedures that commercial banks have to adhere to. Although the National Bank requires second tier banks to (classify their assets by risk into 5 levels, each with its own risk weight), it appears that the National Bank has not been fully successful in ensuring that second tier banks properly follow this requirement.
95. If the non-performing loans of second tier banks are actually higher than presently reported, this could explain why the banks have not been more interested in expanding their loan portfolios.
Private sector’s access to financial resources
96. The problem of access to finance exists in all regions of Kazakhstan. Given that Kazakhstan is a unitary state with a single political and economic system, the problem cannot be solved by regional initiatives. The main indicator for identifying the level of access to finance is the total volume of loans as a percentage of GDP, which is about 23% compared to 64% in Russia.
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97. There is a problem with access to finance in Kostanay region. There are at least two reasons: a. Many legal entities that are keen to get credit financing cannot satisfy the collateral requirements of second tier banks and MFIs. b. Many legal entities do not want to borrow money from the banking sector because interest rates of 16% to 23% (median close to 21%) exceed their rate of return, which averages 15% among all economic sectors.
98. Imports to and exports from Kostanay region (including imports to and exports from other regions of the country) are shown in Figure 21.
Figure 21: Import and Export Flows in Kostanay Region (2009– 2016) ($ million)
Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
99. A positive sign of the region’s competitiveness is the increasing number of exporters in the SME sector, which grew by 9% from 2015 to 2016 (from 173 to 191). Although most of them are small and medium enterprises, 6 are individual entrepreneurs, and 4 are farmers.
Table 19: Exporters in Kostanay Region, by Industry (2016) Industry (according to the General Value of Exports Classification of Economic Activities) Number (billion tenge) Mining and quarrying 3 24.1 Manufacturing 45 30.2 Real estate 1 0.009 Wholesale and retail 122 54.6 Agriculture 14 2.2 Construction 1 0.03
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Transportation and warehousing 4 0.23 Financial and insurance activities 1 0.01 Total 191 111.38 Note: Mining and quarrying exports include mainly clay, asbestos, and ores and iron concentrates. Manufacturing includes the food processing sector, with flour production by far the single most significant export commodity. Statistics for wholesale and retail are based on trade figures recorded at the Kostanay–Chelyabinsk border and may include products produced in regions other than Kostanay; they also include some commodities (e.g., oil seeds) which are likely already recorded under different statistical codes elsewhere. Source: State Revenue Department for Kostanay region of State Revenue Committee, Ministry of Finance. Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
SUMMARY: The traditional financial channels such as commercial banking for SMEs have been narrowing down in Kostanay region. Long-term money needed for sustainable growth of regional entities has been gradually giving place to short-term small scale financing with high interest rates. Moreover, most of individual entrepreneurs use unsecured consumer lending loans to finance working capital and other current operations. Which confirms our understanding that the majority of regional SMEs are in survival mode and many of them cannot consider expansion of operations or saturation of other markets. Enormous financial volumes and multiple instruments of state support programs are dependent on the efficiency of the banking system, as two major instruments – interest rate subsidies and credit guarantees are given only for those entities that already opened (approved) credit lines at second tier banks. The aforementioned constraints have contributed to the problem of the banking sector and its main task of providing the real sector of the economy with the money. However, there are alternative sources of financing for private entities which are highly underutilized in Kostanay region as well as in other regions of Kazakhstan. There is a need to promote the development of alternative sources of financing (such as venture capital and crowd funding) for private sector development in the region.
4. Spatial development
100. In the last few years the Government of Kazakhstan has been paying special attention to spatial development of the country. Various actions have been taken to streamline and build a quality system of spatial development through System of Strategic Planning of the country, which will be explained later. The model of «Center – Periphery», then the principle of «Ray development» were embedded in the Program of territorial development, Scheme of spatial development and in several other programs, especially those that are devoted to hard infrastructure development. This was justified by the necessity to diversify the economy and SME development. Concentration of people and economic activity are key targets, however agglomeration effects that follow these developments establish yet another problem with discrepancies across regions and settlements. This cycle continues with the movement of people from less developed, for the most part rural areas, to urbanized settlements.
101. At this point there are two levels of spatial development trends. First, people move from rural settlements to regional centers. Second, from regional centers and less developed adjacent rural areas to the most developed cities that are steadily becoming agglomerations. The reason is the disparity in income level, quality and quantity of available jobs and disposable basic social infrastructure.
102. The current spatial structure of Kazakhstan, with a large rural population and a network of many dispersed settlements with low population density, does not meet the requirements of a
39 competitive economy. However, following a typical trend in a developing country, there continues to be a steady outflow of jobs from rural to urban areas. For example, the decline in rural employment from 2012 to 2018 was 8%, whereby causing ever-increasing pressure on cities that are enforced to accept migration flows despite lack of housing, education, health care and other social services.
103. The present administrative division took shape in 1997, when major territorial reform changed boundaries of several regions, including Kostanay region. The region expanded at the expense of abolished Turgay region. Official purpose of this reform was to ensure the security of the country, it was justified by: (i) the rational and effective use of land and natural resources; (ii) optimization of labour and budgetary resources.
104. The Kostanay region consists of 16 districts and 4 urban settlements of regional level. Total population is 872,800 people. The level of urbanization in Kostanay region is 54.5%, whereas in the country the level reached 58.2%. In terms of urbanization growth rate, Kostanay region is inferior to more industrialized regions such as Karaganda, Pavlodar, East Kazakhstan and Aktobe regions.
Demographic parameters
105. In terms of demographic trends, on country level - high fertility is constrained by low life expectancy, especially in rural areas, and re-emerging emigration from northern Kazakhstan to Russia and from large cities elsewhere.
106. In Kazakhstan, the positive net of migration is observed in Nur-Sultan and Almaty. Kostanay region has been a donor of labor resources as well as other surrounding Nur-Sultan city regions to its wider agglomeration. Only in 2018, 6% of all incoming migration to Nur-Sultan came from Kostanay region. Over the last five years (2014-2018) the region left 178,408 people, including 87% (155,717) to other regions of Kazakhstan, primarily to Nur-Sultan, and 13% (22,691) abroad, mainly to Russian Federation.
Figure 22: Migration flows in and out of Kostanay region, 2014–2018 50000
40000
30000
20000
10000
Numberpeople of 0 2014 2015 2016 2017 2018
-10000 -2762 -1294 -7722 -6343 -5585
-20000
Arrived Left Net migration
40
Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan
107. If we look at interregional migration on wider timespan 2010-2018, then we would see that Kostanay region provided more people to Nur-Sultan city (27.7 thousand people), Almaty city (4.9 thousand people), Karaganda region (5 thousand people) than received. Overall, the region is a net donor of interregional migration in Kazakhstan, over the last 9 years net balance is -14.5 thousand people.
Figure 23: Interregional migration flows of Kostanay region with other regions of Kazakhstan, 2014–2018
30 25 20 15 10 0.2 0.4 0.3 0.7 0.4 0.2 1.3 1.6 5 0 -5 -10 -15 -0.2 -0.1 -0.5 -0.1 -2.5 -20 -16.2
Arrived Left to Net migration
108. The demographic changes in the region is not common across districts and settlements of the Kostanay region. If we combine indicators of birth rate, death rate and net migration we get net natural increase of population. To understand which districts fall behind and lose or increase in population we need to unify for one coefficient – rate of natural increase (RNI) 7.
Table 20: Rate of population natural increase/decrease in different districts of Kostanay region
Administrative unit 2014 2015 2016 2017 2018 Karabalyk district -1.52 1.22 -1.90 -0.79 -3.63 Lisakovsk town -0.07 -0.36 -2.24 -1.98 -1.98 Denisov district 0.86 -0.92 0.16 0.21 -1.47 Mendykarin district -0.34 -0.75 -0.98 -1.94 -0.92 Zhetykara district -0.32 -0.18 0.87 -0.59 -0.79 Phedorov district 0.22 0.45 0.26 -1.08 -0.59
7 Rate of natural increase is expressed in per mille (‰). Ppm - one tenth of the percentage, that is a thousand share of the number. There are two ways of calculating RTI. One by combining net of birth to death rates, divide by population net and then get Ppm out of it. The other is by adding migration net to equation. Therefore, in our case we take the Natural Increase of a district divide by an annual net of population and multiply by 1,000 to get the Ppm of RTI for a certain territory.
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Auelikol district 3.40 1.97 1.78 1.51 0.07 Sarykol district 0.80 1.00 -1.44 1.05 0.29 Rudniy town 0.91 0.61 0.57 -0.05 0.35 Karasu district 1.58 2.72 2.27 1.20 0.40 Beimbet Maylin district 2.27 0.57 2.04 0.12 0.40 Uzunkol district 0.62 -2.12 -0.98 1.14 1.14 Altynsarin district 1.49 3.96 3.88 3.40 1.73 Kamysty district 3.48 2.44 2.81 3.60 2.59 Kostanay district 5.17 6.86 5.41 4.36 6.11 Kostanay city 6.84 7.25 6.94 7.17 6.50 Naurzum district 7.39 7.55 3.89 4.42 7.71 Amangeldy district 13.33 11.99 12.15 10.86 10.44 Arkalyk 13.02 12.35 11.42 10.40 10.80 Zhangeldy district 10.70 13.38 11.86 12.91 12.16 Source: calculation by ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan
109. As we can see in terms of population growth the best performing districts are in the south of the Kostanay region – Amangeldy, Zhangeldy, Naurzum districts and Arkalyk town. Despite the worst conditions in terms of liveability these territories show net increase in population as opposed to northern districts and urban settlements, such as Lisakovsk and Rudniy. The closer districts to Russian border the worse is the population net. Kostanay city and surrounding Kostanay district stand out, they show steady population growth. Hence, there are two major trends in Kostanay region – the growth of population in uninhabited territory in the south of the region and natural decrease of people in the regions closer to Russia.
110. On average the natural population increase differs between rural and urban areas in Kostanay region. For rural area the natural increase is 2 per 1,000 people, whereas for urban area it is 4 per 1,000 people. If we compare Kostanay region to other regions of Kazakhstan on this indicator, the region falls far behind and is last but one region (North Kazakhstan), the average for Kazakhstan is 15 people for both rural and urban areas.
111. The aggregate birth rate in Kostanay region is the lowest in the country. It is 1.8 per one woman, whereas in North Kazakhstan the same parameter is 2.0; Pavlodar and Karaganda regions – 2.2. The highest in the country is in southern and western regions: Turkestan region – 4.1; Mangistau region – 3.9; Atyrau region – 3.6; Almaty and Zhambyl regions – 3.5. If we decompose this indicator by age and make it by the number per 1,000 women then the picture is the one depicted in Figure 11.
Figure 24: Fertility among women of different age groups in regions of Kazakhstan, number of newborn per 1,000 women (2018)
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93.1 Almaty city 82.1 Kostanay 99.6 104.1 132.7 North Kazakhstan 105.4 128.5 Pavlodar 119 133.3 East Kazakhstan 121.8 134 Karaganda 126.4 150.3 Akmola 126.9 180.2 Nur-Sultan city 141.5 162.5 West Kazakhstan 142 164.6 RoK 164.5 Aktobe 146.1 164.7 Kyzylorda 207.7 185.9 Atyrau 211 193.7 Almaty 219.5 201.3 Shymkent city 183.1 212.4 Zhambyl 207 213.1 228.3 Mangistau 226.7 252.6 Turkestan 262.6
0 50 100 150 200 250 300
25-29 20-24
Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan
112. The situation with death rates is specific for Kostanay region. One of the highest death rates are among men. In 2018 there were 11.1 deaths per 1,000 men in Kostanay region while the same average rate in Kazakhstan was 7.9 deaths per 1,000 men. Within this indicator there were alarming 16 men per 1,000 who were killed in 2018 (3.5 women per 1,000 were killed), whereas in Kazakhstan in the same year the average death toll was 8.4 men per 1,000 (1.9 women per 1,000). Not less significant is the number of suicides observed in Kostanay region, 28.6 suicides per 100,000 people, this is the first but one position (the first place is Akmola region with 34.3 suicides per 100 000 people) in the number of suicides in the country. Moreover, 64.1% of suicides take place among men in rural area.
113. Apart from all of the above, the Kostanay region is the leader on death toll due to respiratory system diseases with 384 cases per 100,000 people, the average number of deaths in Kazakhstan because of this is 187 cases per 100,000 people. The Kostanay region is on the first place for infant mortality as well. 10.4 that were born alive became dead thereafter. In Kazakhstan this parameter is at 7.9 cases per 100,000 people and in top 30 OECD countries 5.9 cases.
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114. Therefore, not only migration but the highest parameters of the death rate in the region make Kostanay region with low net balance of population.
115. Taking into account the rate of urbanization growth in the region with some demographic parameters we can observe some interesting phenomena:
a. life expectancy at birth is positively correlated with the urbanization growth rate in the region;
b. there is no connection between income growth and urbanization growth rate;
c. the urbanization rate is negatively correlated with natural population growth, that is the higher natural population growth rate the lower urbanization rate is in that particular territory;
d. pressure on load of social infrastructure and level of urbanization do not have any relation;
e. the deterioration rate of basic infrastructure (transport, utilities) is positively correlated with the urbanization rate;
f. in the regions with the highest and lowest natural population increase the birth rate in urban settlements is higher than in rural, but the death rate is almost the same;
g. Gini8 index follows the level of urbanization that is the higher the urbanization rate the higher is Gini index for particular territory.
Figure 25: Dynamic growth of life expectancy at birth rate and urbanization rate growth, 2010–2018
73.0 55.0%
72.0 54.0%
71.0 53.0%
70.0 52.0%
69.0 51.0%
68.0 50.0% urbanization, % life expentancy, life expentancy, age 67.0 49.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 Year Life expectancy at birth Urbanization rate
8 Gini is a measure of statistical dispersion intended to represent the income or wealth distribution of a nation's residents, and is the most commonly used measurement of inequality.
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Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan
116. The spatial development in Kazakhstan is subject to the same factors as in other regions of the world. However, there are also differences. The existing administrative and territorial division is a principal legacy of the past, from which the typology of human settlements and the system of administration came. Meanwhile, the regional economic specialization, apart from the largest cities of Kazakhstan, has not changed much. This situation carries certain risks for reaching goals of economic diversification in the region.
Basic infrastructure availability
117. Infrastructure plays key role in spatial development, especially in the procurement of basic needs to population. Harmonization of infrastructure development across regions, districts and cities, urban and rural settlements, facilitation of connectivity among territories may decrease immigration from rural settlements to large urbanized areas.
118. The results of various studies examining the relationship between the state of transport infrastructure and the level of economic development show that lack of transport infrastructure is an important factor in competitive economic development. The needs for construction of new road infrastructure in Kazakhstan and accelerated repair of existing road infrastructure far exceed the comparable needs of similar countries due to relatively more flat distribution of population throughout the vast territory of Kazakhstan. The same logic can be applied to Kostanay region.
119. There are two parameters to verify transport infrastructure development: accessibility of roads and density of roads. The first indicator considers one kilometer per 1,000 people, the second – number of kilometers (the length of all roads) per 1000 km2. For Kostanay region accessibility of roads is 3.5 people per 1,000 people (average for Kazakhstan is 5.3), the density of roads is 31.6 km. per 1,000 km2 (average for Kazakhstan is 30). The first indicator cannot be used for comparison of Kostanay region to other regions because it considers real inhabitants of entire region. Since the number of people diminishes in the region, the accessibility of roads would grow for Kostanay region. The second indicator is quite representative and Kostanay region doesn’t stand far from average for Kazakhstan. However, within the region, both indicators are quite representative.
Figure 26: Situation with road infrastructure development in Kostanay region across districts, 2018
45
40
35 Kostanay district Kostanay region 30 Auelikol district 25 Mendykarin district 20 Beimbet Maylin district (km. per 1,000 people) Sarykol district
15 Karabalyk district Altynsarin district Denisov district Amangeldy district Phedorov district Zhetykara district 10 Uzunkol district Kamysty district Naurzum district Arkalyk town Zhangeldy district 5 Karasu district
0 Accesibility Accesibility of roads 0 5 10 15 20 25
Density of roads (km. per 1,000 m2)
Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan, the Akimat of Kostanay region and JSC «KazAutoZhol»
120. In figure 26, districts that fall into the red zone are those that need close attention from regional and district authorities because both indicators are low. All four are situated in the northern part of the region. If we apply relative proximity to regional center – Kostanay city, then we’ll see that all four are not that far. However, none of the regional districts fall into desired green zone that would indicate relatively good situation with road infrastructure within each of the districts. Some districts, such as Denisov, Zhangeldy, Zhetykara and Kamysty still do not have sufficient road connectivity to Kostanay city.
121. As to connectivity of rural settlements to district centres then among 548 major rural settlements, 495 have hard surface road to a district center (90.3%), with unpaved surface only 53 (9.7%). The unpaved surface roads can be seen in Zhangeldy, Zhetykara and Karabalyk districts. Some inner settlement roads are also in bad condition, for example in Zhangeldy district the roads with dissatisfactory condition is 89%, Auelikol district with 59% and District named after Beimbet Maylin – 58.5%.
122. Among those 548 rural settlements only 338 have permanent bus routes to other settlements available. This situation indicates low connectivity level in Kostanay region. People who leave their settlements leave those once and for all. If there were good connectivity among settlements the rate of emigration might have been much lower.
123. The airport infrastructure is represented by one airport in Kostanay city, in which the flight runaway has been reconstructed. In 2020 the reconstruction of passenger terminal is about to start.
124. The railroad connectivity of Kostanay region to other regions is quite good. The density of railroad infrastructure (km. of railroad per 1,000 km2) is one of the best in Kazakhstan. Kostanay has 6.5 per 1000 km2, whereas Kazakhstan average is 5.8.
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125. Transport infrastructure is of high importance for economic development of the region. Regional connectivity and high mobility of people are the basic conditions for a balanced economic development and diversification of the region. Otherwise, regional business would bear high transaction costs, transit potential would be lost and the regional government would not be able to implement efficient policies in the region.
126. The issue of housing is key in assessing the quality of urbanization processes in the country, as well as the potential for influencing economic growth. In the last ten years the housing situation in Kostanay region has greatly improved, the housing per capita indicator has grown by 30% and reached 21.6 м2 per person. For example in the city of Almaty the same indicator does not exceed 15 м2 per person, in Nur-Sultan even less – 11 м2 per person. In 2020 local authorities plan to commission 343.2 thousand square meters.
Table 21: Quantitative parameters of urban housing stock in urban settlements by region, including number of apartment buildings (2018)
Region Number of Housing stock, in Number of 2 apartment thousand m apartments buildings Akmola 7,265 4,775.60 101,813 Aktobe 6,138 7,546.60 129,765 Almaty 11,242 5,464.60 86,901 Atyrau 4,370 4,692.30 72,597 West Kazakhstan 2,872 4,400.40 85,652 Zhambyl 4,298 5,294.20 79,935 Karaganda 21,729 15,086.50 371,360 Kostanay 6,390 6,178.80 156,503 Kyzylorda 2,495 4,525.70 57,645 Mangistau 1,655 3,618.30 83,416
Pavlodar 5,654 7,206.60 186,627 North Kazakhstan 3,423 3,310.10 76,202 Turkestan 4,356 5,809.10 35,586
East Kazakhstan 14,478 10,556.10 243,247 Nur-Sultan city 4,369 11,699.60 255,157 Almaty city 26,739 27,036.00 501,513
Shymkent city 4,565 11,870.90 92,959 Total 132,038 139,071 2,616,878 Source: Reference book on housing sector by The Committee of statistics of MNE RoK
127. The housing stock is growing, but the quality of existing housing buildings should be accounted for as well. In Kostanay region 42 thousand square meters of housing need immediate repair, 2,340 people have to relocate to other housing. The share of apartment blocks enacted before 1,979 equals to 47%, the share of those appeared after 2001 is less than 15%. However, countrywide figures are worse: housing buildings went into operation constitute 77%, whereas the new ones appeared after 2001 are less than 14% out of total.
128. In the regional Program of territorial development (PTD), Akimat plans to reach the housing per capita indicator up to 23.2 м2 per person by the end 2020. The main construction takes place in Kostanay city. The Akimat needs to extend construction activities to other districts
47 especially in large settlements (Rudniy, Lisakovsk) and district centers of northern part of the region.
Table 22: Provision of basic amenities in Kostanay region and average national parameters in % of availability (2018)
Hot water Sanitation District Water supply Hot from infrastructure heating water stationary supply heaters Kostanay region Urban 100% 91% 79% 78% 7% Rural 85% 28% 4% 1% 8% Republic of Kazakhstan (average) Urban 100% 87% 60% 56% 14% Rural 96% 37% 3% 2% 11% Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan
129. According to Table 22, the level of basic amenities availability in Kostanay region is competitive on national level. However, rural area of Kostanay region stand behind, especially in water supply and sanitation infrastructure. The volume of losses is quite big in Kostanay region, for example in water system total losses come up to 13.5%. Deterioration rate for all types of system does not exceed 60% (for example water system has 46.5% deterioration rate), which correspondents to national level rates.
130. Social infrastructure is an important factor in reaching high livability indices. In terms of availability of preschool facilities, Kostanay region are in the list of the worst performers. The number of children in the waiting list amounted to 20,000 people while total number of existing spots at 26,700. The ratio is 129 children for 100 spots at pre-school organizations. The total number of pre-school organizations amounted to 602 in Kostanay region, only 11.5% of this number are private. This signifies of very low interest from business people to work in this field. For example, in Turkestan region the share of private kindergartens is 59%, in Kyzylorda region – 60% and in Almaty region – 45%.
131. Different situation is with the schools availability. There are 532 school facilities for 105,897 pupil in the region, which gives a ratio of 199 people per one school. This is one of the best indicators, for example in Nur-Sultan there are 1,419 pupil per one school, in Mangistau region 844 pupil per one school. At the same time, this indicator should not be misleading, as it reflects current bad demographic situation in the region especially of the number of children present.
132. To understand the quality of high-school education we need to see the ratio of pupil per one teacher. There are 17.1 children for one teacher at schools in Kostanay region, whereas the average number in Kazakhstan is 19.1. This means that Kostanay region should have one of the
48 best performers among pupil. However, according to PISA9 the test results in Kostanay regon is just below average of Kazakhstan (Figure 21).
Figure 27: Average mean score of PISA test in Kazakhstan regions
Atyrau 406 Turkestan (incl.Shymkent) 421 Mangistau 422 Aktobe 428 Akmola 436 Kostanay 438 RoK 448 Almaty 449 East Kazakhstan 451 North Kazakhstan 452 Kyzylorda 457 Pavlodar 457 West Kazakhstan 461 Almaty city 467 Zhambyl 470 Karaganda 482 Nur-Sultan city 483
Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy
133. According to OECD methodology for PISA – 30 points between results of territories equals to 1 year difference in educational progress. Therefore, an average pupil in Kostanay region is 2 years behind average pupil from Nur-Sultan city and Karaganda region, and 1 year behind pupil from Zhambyl region and Almaty city. It should be noted though that pupil from rural settlements are almost equal in PISA scores to their urban area counterparts in Kostanay region (the difference is mere 2 points).
134. There are 780 medical facilities (health care organizations) in Kostanay region with 4,727 in-patient beds, it makes 5.42 in-patient beds per 1000 people. This one of the worst figures on national level, for example in Aktobe region the same parameter is at 47 in-patient beds per 1,000 population, whereas in Karaganda region it is at 9 in-patient beds per 1,000 people. It is hard to find the most recent number of doctors that work in the region, but in 2016 there was only 25 professional doctors of generic specialization per 10,000 people. This parameter is better only in comparison to Almaty region (24 per 10,000 people), whereas in all neighboring regions the situation is better. In Akmola region and North Kazakhstan - 30 doctors per 10,000 people, Karaganda region 45 doctors per 10,000 people, Aktobe region 43 doctors per 10,000 people, Nur-Sultan 87 doctors per 10,000 people.
9 The Programme for International Student Assessment (PISA) is a worldwide study by the Organisation for Economic Co-operation and Development (OECD) in member and non-member nations intended to evaluate educational systems by measuring 15-year-old school pupils' scholastic performance on mathematics, science, and reading.
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Rural settlements
135. The Kostanay region has natural disproportions in terms of territorial development, the relatively urbanized north and low population density in the south of the region. The regional inequality in terms of basic needs availability is the main reason of people’s migration from rural area to urban settlements and from Kostanay region elsewhere.
136. Prior to Auyl El Besighi program all other programs devoted to rural area development were set solely to economic development of agriculture sector. The majority of financial support that came to the region went to large agricultural companies, small and medium size entities and individual entrepreneurs at most could not reach support from the government, not to mention ordinary people living in rural settlements. The Auyl El Besighi program is designed to develop living standards at rural area.
137. As of beginning of 2019, there are 548 rural settlements with more than 100,000 households. The number of settlements diminished by 8% in comparison to 2018 because of large migration from Zhetykara, Zhangeldy and Beimbet Maylin districts. The age structure of rural population has been changing as well. The number of retired people grow while young people leave rural area in large numbers. Only in 2018, 6,436 young people (16- 29 years old) and 1,051 children (up to 16 years old) left rural settlements.
Figure 28: Comparison of population strata at 5 major district centers of Kostanay region, 2018
40%
35%
30%
25%
20%
15%
10%
5%
0% Borovskoye Phedorovka Auelikol Karasu Sarykol
share of children under 16 share of young people between 16 and 29 share of retired people
Source: ADB consultants, based on statistics from State program of regions’ development 2020-2025
138. 172 settlements have central water supply systems in place, but those systems are marked with high deterioration rates. 33 settlements (18,596 people) import water, whereas the quality of water in 10 settlements do not fit the required sanitary standards.
139. Speaking of healthcare availability there are 461 medical facilities, 15 central district hospitals, 2 rural hospitals, 39 outpatient clinics, 72 first aid stations, 323 single medical points, 10 medical staff without permanent facility. At the same time, 89 rural settlements do not have any medical healthcare services available. Total deficit of medical staff in rural area: doctors –
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31.8%, practical nursing personnel – 11.7%. Given current situation with various seasonal diseases and coronavirus outbreaks this makes situation alarming.
Table 23: Road infrastructure condition at rural settlements in Kostanay region as opposed to average numbers in Kazakhstan (2018)
Good Satisfactory Unsatisfactory Kostanay region Kostanay region 3.9% 67.6% 28.5% Republic of Kazakhstan 19.8% 42.3% 37.6% Source: ADB consultants, based on statistics of the Akimat of Kostanay region
140. The road infrastructure within settlements is not in a good shape as well, however given amount of funds that will come in 2020 and the following years from all levels of state budgets the situation should change for the better.
141. The number of rural settlements that became part of the functional city district of Kostanay city is 23, with total population 50,300 people, that makes Kostanay city larger in terms of population exceeding 300,000 people. The city’s administration now will plan hard and social infrastructure development given that enlargement. However, this should be a first step in coordination of territorial development within the region. It is important that large urban settlement such as Rudniy and Lisakovsk should start the same practice but not on the basis of one administration, but through Memorandum of understanding with adjacent settlements. In doing so they would increase chances on covering basic financing needs for the development.
142. Overall common barriers for rural area development:
a. low level of basic infrastructure quality and availability (water supply, transport connectivity). High deterioration rates of electricity, water supply, sanitation, heat supply systems;
b. low income level and high share of self-employed people;
c. low level of education and healthcare services availability.
Arkalyk
143. Arkalyk is of high importance for Kostanay region, because it is the only one relatively big settlement in the south of the region. Administrative-territorial composition of Arkalyk makes it a unique place unlike many other towns because it includes 18 separate rural settlements with population density of 2.6 people per square meter. Arkalyk is far from major neighboring cities, including Kostanay (464 km.), Karagandy (350 km.) and Nur-Sultan (555 km.). The only national road crossing Arkalyk is «Zheskazgan - Petropavlovsk» route, which is set for renovation within 2-4 years period according to Nurly Zhol program. Arkalyk recently got railroad connection through self-sustained railway station and rail corridor «North-South».
144. The main problem for Arkalyk is forthcoming depletion of recoverable bauxite resources in 2022. Local budget and employment base is dependent on this resource. However, Arkalyk has started losing people swiftly from early 1990-s, overall 45% (34,129 people) left this settlement for good. Local budget is subsidized heavily by central budget that covers for about 69% of all expenses.
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145. Arkalyk needs and deserves a separate recovery roadmap or an action plan. The regional and town’s authorities try to solve problems as they come. Last year 690 personnel from bauxite mining company were planned to be fired. Most of them were relocated, others who wanted to stay in Arkalyk tried to launch their own business or find some low paid jobs. This year another portion of people will be fired, so the problem intensifies as 2022 comes closer.
Spatial development indicators
146. For evaluation of spatial development in particular region two major indicators are usually used – the economic and demographic concentration. At the same time, the economic concentration (density) indicator has multiple types of interpretation.
147. According to the Committee of statistics of RoK demographic density in Kazakhstan reached 6.8 people per km2. Though, population is not evenly distributed across the country. For example, the demographic density is 17.1 people per km2 in Turkestan region while in Aktobe region the same indicator shows 2.9 people per km2 . The same goes to density of labor resources, it replicates demographic density regions relative positioning in the list. The Kostanay region is in the middle of all regions with 2.6 economically active population per km2, whereas average across regions is higher with 3.4 people km2.
148. Economic density is quite controversial parameter because of many ways of calculating it. However, if we compare different types of economic density index calculations, we would see clear leaders - Atyrau, West Kazakhstan and Mangistau regions, all dominated by oil & gas industry in the economy. If we exclude these regions, then Kostanay region’s position does not look bad. Unexpectedly, North Kazakhstan and Akmola regions are on the top of regions on economic density parameter.
Table 24: Comparison of demographic and economic density parameters of Kazakhstan’s regions (2018)
Demographic Density of labor 1.Economic density 2. Economic 3. Economic density (person resources (production output density (GVA* density (GVA Region per km2) (person per of bln.tenge per per 1 SME) per 1 km2) 1000 km2) employed person) Akmola 5,1 2,9 12 2,9 1 Aktobe 2,9 1,5 9 2 0,8 Almaty 9,1 4,7 13 1,7 0,8 Atyrau 5,3 2,7 66 5 1,7 West Kazakhstan 4,3 2,2 18 3,9 1,3 Zhambyl 7,8 3,7 11 1,1 0,6 Karaganda 3,2 1,6 11 2 0,7 Kostanay 4,5 2,6 11 2,9 0,9 Kyzylorda 3,5 1,5 7 1,8 0,8 Mangistau 4,1 1,9 23 2,7 1,1 Pavlodar 6 3,3 38 2,5 0,8 North Kazakhstan 5,7 3,2 28 3,2 0,9 Turkestan 17,1 7,2 67 0,3 0,2 East Kazakhstan 4,9 2,5 10 1,7 0,6 RoK 6,8 3,4 23 2,9 1,1
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* GVA – Gross Value Added Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan 149. The economic density should be looked at through tax concentration, which is calculated by applying Index of Herfindahl-Hirschman (HHI)10. Among all districts of Kostanay region, the lowest is in Kostanay city – 0.01 HHI, the highest is in Rudniy town – 0.15 HHI, Lisakovsk and Zhetykara have somewhat moderate indicator with 0.12 HHI. 150. In order to see the level of spatial development within the region and, at the same time, understand potential for entrepreneurship development, we need to compare all districts along two dimensions Economic density of SME per km2 and Demographic density. Figure 29: Disposition of districts of Kostanay region in terms of spatial development, 2018
0.60
) 2 0.50 Kostanay district
0.40 (SMEs (SMEs perkm Kostanay region 0.30 Zhetykara district Sarykol districtPhedorov district Sarykol district 0.20 Beimbet Maylin district Mendikarin district Naurzum district Auelikol district Uzunkol district 0.10 Amangeldy district Economic density Karasu district Denisov district Kamysty district - Zhangeldy district 0 2 4 6 8 10 12 Performing districts Demographic density (people. per 1 km2) Best Optimal Worst
Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan and the Akimat of Kostanay region 151. In Figure 29 two districts are leaders – Zhetykara and Kostanay district. Both districts surround two major cities of Kostanay and Rudniy. Both districts are dominated by services sector and manufacturing, agriculture does not play a major role. Six districts need special attention – Kamysty, Denisov, Karasu, Zhangeldy, Naurzum and Amangeldy. The latter three are in the south of the region, which is vastly unpopulated, lacks all types of infrastructure and connectivity. Denisov stands out due to significant emigration flows and negative net population balance (Table 20). Karasu district has the worst development indicators on roads infrastructure (Figure 26). Nevertheless, all these factors do not impact spatial performance indicators of other districts. We need to look closer to business climate conditions and other aspects in these districts. 152. Observation of spatial development serves two roles: one is to understand how a particular territory develops along different time periods, the second is to see which zones need special attention and in which areas of development.
10 HHI – measures tax concentration of entities, the indicator that demonstrates dependence of a region on taxes from large companies (by size). It is measured on a range of digits from 0 to 1, «1» is total dependence, «0» no dependence. The range has three slots: low (0-0,1), medium (0,1 – 0,18), high (0,18-1,00).
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153. Migration flows clearly delineate existing discrepancies among various territories. Kostanay region is a small part of the country and mimics it in terms of economic and spatial development. Existing hard infrastructure is basically the heritage of the Soviet past. Connectivity and provision of basic needs for existing residents should be on the top of the tasks for the regional authority. SMEs would grow if there are markets which depend solely on people who live on certain territories and with relative standard of living. The urbanization processes are organic in nature, however can be indirectly controlled. 154. Population forecast given current processes in Kazakhstan regions was prepared by Kazakhstan Center for Labor Resources (KCLR11) in 2019. 155. By 2025 the population will change significantly, especially in age distribution in Kostanay region. If we consider forecast of population changes in such urban settlements as Nur-Sultan city (+37% or 386,500 people), Shymkent (+30% or 290,000 people) and Almaty city (+19% or 348,000 people) then we would see an enormous growth. The lowest growth rate and even decline in the number of people will be observed in Northern and Eastern Kazakhstan. According to this forecast, Kostanay region will lose 4% or 32,600 people. This decline will take place across all three demographic parameters – birth and death rates, migration. The worst situation will be seen in the ratio of retired people to young people. The number of workforce in Kostanay region will decrease by 9%, from 513,000 EAP to 469,000 EAP. Given only five year period this is a large difference. Taking into account all of these changes the Akimat needs to think of the healthcare system renovation, attraction of qualified medical personnel (because of the growth of the number of retired) and enhancement of the regional labor market. As of today business people in all economic sectors define lack of personnel as one of the major problem, so within 5 year period this problem will aggravate further. Apart from that coordination of jobs planning, SME development and infrastructure development should be launched with the Nur-Sultan agglomeration authority. 156. Initial recommendations: a. Like Kostanay functional city district, major settlements – Rudniy, Lisakovsk, Zhetykara should include adjacent (15-20 km. perimeter) rural settlements in the territorial development plans. At first road and social infrastructure enhancement as well as housing and corresponding issue of quality employment should be coordinated; b. Forming conurbation12 Kostanay-Rudniy-Lisakovsk should be bolstered and take an administrative shape in the form of Joint program of development, as an extension of regional PTD. At first this program should affect connectivity along these three urban settlements with the focus on elimination of time spent on commuting; c. Given several parameters of spatial development Zhetykara district surpasses all other districts and it should be a focus of economic development policy of regional administration. There is no paved road to Russian border – the regional Akimat should coordinate with regional authorities of Chelyabinsk region to plan a crossing
11 KCLR is an analytical center under the Ministry of Labour and Social Protection of RoK, which is engaged in "carrying out systematic and comparative analysis, conducting research, making recommendations on implementation of state policies in the field of employment and social assistance." https://iac.enbek.kz/ru/node/64 12 Conurbation - the agglomeration of polycentric type that has more than one urban kernel with none of dominated settlement
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point on the border between the countries. Provide existing resources and preferences to economic subjects operating in this district. d. At the planning stage change non-financial targets from the focus on physical measurements (e.g. network length) to performance indicators measured in terms of people’s satisfaction and productivity. SUMMARY: International reports on spatial development confirm similar problems in territorial development - accelerated population growth in urban areas, poor urban planning, lack of infrastructure and overloading of public services, deterioration of environment conditions, etc. The main challenges of spatial development are social and territorial disparities, as well as the lack of economic opportunities for the poor and vulnerable. To fill in the infrastructure development gap, cities in developing countries, according to experts, need annual investment from 2% to 8% of Gross Regional Product. International rankings of urban development13, based on calculations of separate qualitative and quantitative indicators, confirm the importance of such factors as quality of health, life expectancy level, access to basic social services, purchasing power, minimum subsistence level, other economic factors, infrastructure, safety of life, environmental conditions, etc. Kostanay region is a scaled down version of the country with dominant industries of mining and agriculture, with relatively urbanized northern part (Rudniy, Lisakovsk, Kostanay, Zhetykara) and low density in the south. Kostanay region has a similar problem as other regions with mono towns, a principle example is Arkalyk town, and to a lesser extent Zhetykara and Lisakovsk. In particular, the existing dependence of urban settlements on large enterprises, mainly mining, has an impact on employment and the economic well-being of entire population. Infrastructure plays a key role in spatial and territorial development, especially in ensuring the harmonization of public services (utilities, healthcare and educational services, etc.) in all major district centers in terms of coverage and quality. Such harmonization can significantly reduce the need for the majority of population to move to large urbanized settlements due to the lack of basic services. Regional inequality is one of the main causes of population outflows. In spatial organization, sustainable rural development plays an important role not only in terms of socio- economic development and employment, but also as a deterrent to "manageable urbanization". At the same time, the key factor for diminishing the migration of population to large cities is the improvement of the quality of life and standards in rural areas to best regional levels. The uneven development of the region is evident when we compare different settlements both in one group (Kostanay city and mono towns) and vertically along all types of settlements. Lack of adequate transport connectivity, weak interregional cooperation and low density (demographic and economic) of subjects raises the issue of spatial development as a priority. At the same time, in order to adequately assess the socio-economic development of the territory, the indicator "number of inhabitants" should be significantly supplemented by other indicators, especially those showing the dynamics, rather than the current static state of development. It is also necessary to use the demographic model in the city planning development based on demographic modelling and social infrastructure development. The methodology for assessing and assigning settlements to differentiated groups within 4 types of territories according to the OECD methodology is proposed in the Appendix 2.
13 International Ratings for Quality of Life in Cities: Economist Intelligence Unit Global Vitality Report, GaWC Cities Globality Index, A.T. Kearney Global Cities Index, Tokyo City Policy Center Global Power City Index (The Mori Memorial Foundation), etc.
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5. SME sector
156. As of 1 January 2020, there were 13,875 small and medium business entities in Kostanay region. Among those active entities, operating ones constitute a little less than a half – 7,068 in total. The aggregate number by type of business and their status are shown in Table 25.
Table 25: SMEs Organized as Legal Entities in Kostanay Region (January 2020)
Suspended In SME Type Total Active1 New2 Operating3 Activity Bankruptcy Small 13,875 10,502 863 6,795 2,844 464 Medium 276 276 3 273 - - Total 14,151 10,778 866 7,068 2,844 464 SME = small and medium enterprise. 1 Active entities file statistics reports but do not necessarily have any operations. 2 New entities were registered as legal entities in the current year (2019). 3 Operating entities pay taxes, produce goods and services, and show activity in the market. Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
157. Taking into consideration the survival rate in Kostanay region we need to stress the number of entities with suspended activity – 2,844 entities as opposed 1,724 two years ago, this is a net of 1,102 subjects that in one way or another would go out of business. The number of new entities registered in the last year is fewer than in 2017, 866 as opposed to 880 in 2017. Not a big difference though, but given the share of operating to registered (49.8%) we should consider that even one new active entity can make a difference. The share of operating to registered entities among all SMEs in Kostanay region, including individual entrepreneurs and farmers, is 70%. The difference in 20% provides information that something is wrong with being a legal entity. Apparently, working as a legal entity is more risky than as an individual entrepreneur.
158. The share of small entities to total number of active legal entities, 96%, signifies the low competitiveness of SME sector in Kostanay region. However, the share of small business nationwide is the same – 96% among all active legal entities. Along the time period we could see that very few companies overpass 10 years threshold, there are only 3,988 SMEs with 11 and more years of existence.
159. In order to understand the death rate of entities within the group of active entities we divide the sum of Suspended activity and those in bankruptcy (non-operating) by the amount of operating plus non-operating. For 2019, the death rate equals (2,844+464)/ (7,068+2,844+464) = 32%, whereas in 2017 the same rate was 27%. Given fewer new entities in 2019, we conclude that in 2019 more companies have to discontinue their business than it was in 2017.
Table 26: Active legal entities in Kostanay Region by age (2019)
Age 0-3 4-8 9-10 11-15 16-20 21-25 more %, Size years years years years years years than 25 Total share Small 3,203 2,180 658 1,640 1,188 867 84 9,820 96% Medium 24 27 17 37 91 84 7 287 3% Large 12 14 8 20 22 22 6 104 1% Total 3,239 2,221 683 1,697 1,301 973 97 10 211 %, share 32% 22% 7% 17% 13% 10% 1% Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan
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160. Among active entities, 8,316 are privately owned (81%), of which 777 have foreign participation or 100% foreign ownership (9.3% out of total private entities). The rest are state enterprises or have partial state ownership. The ratio of private entities to state owned enterprises is higher, 91% of private legal entities operate in the country, of which 21,149 (8,3%).
Figure 30: Distribution of Active Legal Entities by Economic Sector (2019)
Water and sewage systems, electricity supply, other communal services , 1.0%
Accommodation services and food catering services, 0.9% Mining and quarrying , Art, leisure and 1% recreation, 1% Other services, 7.1% Healthcare and social services, 1.7% Information and communication, 1.7% Financial and insurance Trade, 28.3% services, 2.2% Admin. services, 3.4%
Transport and warehousing, 5.2% Real estate services, 4.4%
Professional and science/tech services, 4.7%
Construction , 9.1% State management and Manufacturing, 5.5% defense, 7.2% Agriculture, fishery, Education , 8.8% forestry, 7% Source: Asian Development Bank consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, and Republic of Kazakhstan.
161. Trade (both wholesale and retail) and services represent the largest share of business activity in the region – 28.3%. Construction has risen since 2017 and constitute 9.1% of all legal entities. Other major sectors represent Education – 8.8%, Agriculture – 7%, and State management – 7.2%. Only 5.5% of legal entities are engaged in manufacturing.
162. Among small entities, trade is the most common type of activity. In Kostanay region, this includes the wholesale trade of wheat, various types of seeds, and feed stock for animals. The second most popular activity for small businesses is agriculture, including crop production and animal husbandry. In the last year a few companies appeared in the construction sector. Among medium entities, logistics and warehousing, production of alcoholic beverages, and agriculture dominate.
Table 27: Most Popular Types of Activities Among SMEs in Kostanay Region, at Different Time Periods Year Small Entities Medium Entities 1. Growing of cereals and crops, including 1. Growing of cereals and crops, including seeds’ cultivation and growing seeds’ cultivation and growing 2. Wholesale trade of a wide range of goods 2. Banking activities without any specification 3. Wheat seeds warehousing 1998 3. Real estate 4. Wholesale trade of grain, seeds and animal feed stock 5. Lease and management of individual property
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1. Wholesale trade of a wide range of goods 1. Growing of cereals and crops, including without any specification seeds’ cultivation and growing 2. Growing of cereals and crops, including 2. Activities of other institutions performing seeds’ cultivation and growing technical tests and analyses 3. Activities in the field of civil society (public 3. Other wired telecommunications 2000 organizations) 4. Wheat seeds warehousing 4. Wholesale trade of grain, seeds and animal feed stock 5. Lease and management of individual property 1. Wholesale trade of a wide range of goods 1. Growing of cereals and crops, including without any specification seeds’ cultivation and growing 2. Activities in the field of civil society (public 2. Wholesale trade of a wide range of goods organizations) without any specification 2007 3. Construction of residential buildings 3. Retail trade, mainly of food products 4. Wholesale trade of grain, seeds and animal feed stock 5. Other types of lending 1. Wholesale trade of a wide range of goods 1. Mixed farming activities (crop production, without any specification animal husbandry, services in agriculture, 2. Breeding of cattle for meat production etc.) 3. Wholesale trade of grain, seeds and 2. Flour production 2016 animal feed stock 3. Management of real estate on a fee or 4. Activities in the field of civil society (public contract basis organizations) 5. Breeding of other type of animals 1. Wholesale trade of a wide range of goods 1. Mixed farming activities (crop production, without any specification animal husbandry, services in agriculture, 2. Wholesale trade of grain, seeds and etc.) animal feed stock 2. Construction of residential buildings 2017 3. Transportation by road vehicles 3. Bread production; production of fresh flour 4. Breeding of cattle for meat production confectionery, cakes and pastries 5. Mixed farming activities (crop production, 4. Logistics and warehousing services animal husbandry, services in agriculture, 5. Distillation, rectification and mixing of etc.) alcoholic beverages 1. Wholesale and retail trade of a wide 1. Mixed farming activities (crop production, range of goods without any specification animal husbandry, services in agriculture, 2. Real estate etc.) 3. Breeding of cattle for meat production 2. Logistics and warehousing services 2019 4. Wholesale trade of grain, seeds and 3. Distillation, rectification and mixing of animal feed stock alcoholic beverages 4. Other services 5. Construction of residential buildings Source: Asian Development Bank consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, and Republic of Kazakhstan.
163. Over time, some activities have faded away in importance, while others have appeared (Table 27). If we look closely to agriculture sector on all SMEs, not only legal, we would see the best survival rate in the form of acting to registered entities among farmers – 95.7%, whereas the same rate of individual entrepreneurs (81.5%) and legal entities (84.3%) is much lower. The growth rate across all indicators of this group is impressive as well given impediments of agricultural industry. Total output by farmers had grown from 2018 to 2019 by 105.5%, number of employed in farming by 102.3% and total number of acting farmers grew by 111.5%.
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Table 28: Acting SMEs working in the field of agriculture in Kostanay Region in comparison to country parameters (January 2020)
Legal % to Individual % to % to SME Type Farmers entities registered entrepreneurs registered registered Kostanay region 797 84.3 609 81.5 6,112 95.7 RoK 13,937 80.1 26,918 89.1 211,740 96.5 Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan
164. The share of SMEs in the gross regional product (GRP) of Kostanay region is 29.4% (2018). In comparison to other regions, the share of SMEs in total output outstripped the national average of 28.4% (Figure 31). Among regions those comparable to Kostanay - Karaganda have lower share of SME sector in gross product – 17.2%, Akmola region a bit larger – 30.8%. Interestingly, while North Kazakhstan reached 29.7% in GRP, Atyrau region with its abundant natural resources – 18.7%. Nur-Sultan city’s share of SMEs in GRP hits the record, but it also demonstrates downslope in the last two years. However, taking into account growth rate along last 10 years, by computing CAGR14 we see that Kostanay region has not shown much progress in comparison to national average 20.72%, with 14.92%. It means that in some other regions of Kazakhstan SME dynamics accompanied economic growth of GDP, whereas Kostanay region had not grown much, perhaps lost some momentum for dynamic growth on sectoral or district level.
Figure 31: Share of SMEs (Gross Value Added) in GRP from 2007 to 2018 in Kostanay Region and Other Regions (%) 61.8 CAGR 60.0 57.4 54.4
48.6 50.0 46.0 1) 24,96%
40.0
32.2 31.5 2) 19,01% 30.8 29.7 28.9 28.6 29.1 3) 14,96% 30.0 27.2 25.9 26.8 26.8 25.6 25.6 25.6 26.1 29.4 25.3 25.2 24.9 25.1 4.)14,92% 24.0 25.0 22.2 22.6 23.4 23.1 24.4 25.4 28.4 5) 20,72% 21.5 21.0 23.9 25.1 20.3 20.2 20.1 19.5 19.2 17.7 23.3 21.8 23.2 18.7 20.0 17.7 17.6 6) 22,91% 20.6 16.8 16.7 17.4 16.7 14.2 17.3 17.1 12.4 12.1 11.1 11.1 17.2 10.3 10.2 10.7 10.7 12.7 7) 21,91% 12.7 10.0 7.3 11.8 8.8 7.7 7.6 8.1 6.9 5.8 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 5) Kazakhstan 2) Akmola region 7) Karaganda region 6) Atyrau region 4) Kostanay region 3) North Kazakhstan 1) Nur-Sultan city
Source: ADB consultants based on data from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
14 CAGR – Compounded Annual Growth Rate
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Table 29: Total Output of SMEs, Individual Entrepreneurs, and Farmers, by Region (million tenge), 2018
SMEs % share Individual % share % share Region (legal of total Entrepre- of total Farmers of total entities) in RoK neurs in RoK in RoK Akmola 667,020 2.9% 71,487 4.1% 47,142 3.6% Aktobe 760,239 3.3% 73,554 4.2% 61,137 4.6% Almaty 982,126 4.2% 105,481 6% 280,124 21.3% Atyrau 2,276,095 9.7% 92,219 5.2% 17,290 1.3% West Kazakhstan 1,383,062 5.9% 79,811 4.5% 47,269 3.6% Zhambyl 305,200 1.3% 50,653 2.9% 123,689 9.4% Karagandy 1,114,102 4.8% 114,851 6.5% 104,313 7.9% Kostanay 729,053 3.1% 88,046 5% 91,535 6.9% Kyzylorda 324,725 1.4% 35,377 2% 20,515 1.6% Mangistau 852,757 3.6% 84,296 4.8% 6,205 0.5% Turkestan 284,463 1.2% 53,545 3% 194,047 14.7% Pavlodar 595,613 2.5% 74,533 4.2% 75,570 5.7% North Kazakhstan 439,694 1.9% 51,665 2.9% 79,470 6% East Kazakhstan 756,079 3.2% 114,758 6.5% 166,381 12.6% Nur-Sultan city 4,676,732 20% 209,453 11.9% 25 0% Almaty city 6,514,511 27.9% 356,411 20.2% 5 0% Shymkent city 729,241 3.1% 108,815 6.2% 2,635 0.2% Total 23,390,712 100% 1,764,985 100% 1,347,352 100% Source: Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
165. In addition to legal entities among all SMEs, another category of small business is individual entrepreneurs who have not established a legal entity. Output produced by active individual entrepreneurs in the region is almost one tenth of that came from legal entities (as of 2018). However, in terms of national share this group performs better than legal entities, 5% share of individual entrepreneurs in the national output, whereas legal entities provided only 3.1%. Farmers do even better – 6.9% of the national output amount. As opposed to 2017 indicators all three groups of economic subjects had added of up to 1% in total.
Figure 32: SME Output, by regions (2019)
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35% 30% 25% 20% 15% 10% 5% 0% 3.1%
Share of national SME output Share of no. of operating SME legal entities
Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
166. In terms of output of SMEs of Kostanay region in total national output of SMEs, the region has a small share (3.1%). This share is lower than the region’s share (4%) in the total number of operating SMEs in the country. Apart from two largest cities, Atyrau, West Kazakhstan and Mangistau regions have good combination of both indicators. Relatively large output is produced by a few number of SMEs. Even though the region is agricultural, the share of all farmers’ output is lower than that of Karagandy (8%), Zhambyl (9.4%), and East Kazakhstan (12.6%) regions, which are often viewed as less agricultural than Kostanay region.
Table 30: SME Employment Statistics, by Region (2018)
Region’s Average share of SMEs’ Number Number of Number of number of Number Share of of people people people people of people Total employed employed by employed employed by employed Number by each SME – by SME - SME - legal by SME – of People acting individual legal entities entities in farmers employed legal entrepreneurs entire in region entity Region country Almaty city 421,326 25% 6 187,023 819 67% Nur-Sultan city 240,477 14% 5 133,691 391 74% Karagandy 124,685 7% 6 100,585 12,176 36% East Kazakhstan 96,766 6% 7 109,410 25,557 34% Almaty 92,734 5% 7 94,760 64,601 25% Shymkent city 82,678 5% 6 59,410 2,272 37% Kostanay 80,106 5% 8 68,643 11,078 33% Atyrau 73,658 4% 9 58,765 3,721 45% Aktobe 70,698 4% 6 61,697 8,963 34% Akmola 68,349 4% 7 57,155 7,727 33% Pavlodar 65,790 4% 6 60,915 6,910 34% Mangistau 61,427 4% 6 58,688 2,695 40% North Kazakhstan 58,446 3% 8 39,609 7,007 35%
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West Kazakhstan 52,454 3% 7 52,136 10,400 36% Turkestan 51,369 3% 5 69,738 82,654 26% Kyzylorda 38,894 2% 5 43,994 9,870 28% Zhambyl 36,913 2% 4 58,943 23,684 24% Kazakhstan (all) 1,716,770 100% 6 1,315,162 280,525 38% SME = small and medium enterprise. Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, and Republic of Kazakhstan.
167. Participation of SMEs in employment in quite large nationwide. Total number of employed by SMEs (legal entities, individual entrepreneurs and farmers) was 3.3 million people in Kazakhstan, which constitutes 38% of all employed personnel in the country. In Kostanay region total number of employed came up to 159,827 that is 33% of all employed in the region. Including by legal entities – 80,100 people (5% of all employed by legal entities in the country), by individual entrepreneurs – 68,600 people (5% by individual entrepreneurs in the country) and by farmers 11,000 (4% by farmers in the country). As opposed to 2016 employment parameters, SME sector has added 1% in total share of employed in the country and 10% by nominal number of employed. In 2016 the share of employed by SMEs was 31%, in 2018 33%.
168. The average legal entity in Kostanay region employs 8 people, which is more of that number employed by the average SME in the country – 6 people.
169. However, while the SME sector employs 38% of all employees in Kazakhstan, the percentage for Kostanay region is even lower—only 33%. In comparison, in most developed countries, a majority of employees belong to the SME sector, for example, in 2018, 63% in Germany, 80% in Italy, 68% in Poland, and 53% in the United Kingdom. The same indicator for Baltic countries: Latvia – 79%, Lithuania – 75%, Estonia - 78%. But China showed the best share – 82%.
Figure 33: Productivity level by SMEs and SME employees in regions, million tenge (2019) 6 5.4 5.6 5 5 3.9 4 3.2 2.9 2.9 2.7 2.9 3 2.5 2.4 2 2 1.7 1.8 1.7 2 1.1 1.8 1 1.7 0.3 1.6 1.3 1.1 1 1.1 1 0.8 0.8 0.6 0.7 0.9 0.8 0.8 0.9 0.6 0 0.2
Value added per 1 SME Value added per 1 employee at SME
Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
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170. The productivity level in Kostanay region corresponds to the average indicator in Kazakhstan. The productivity level was 2.9 million tenge per one SME in Kostanay region, while productivity of one employee of SME amounted to 0.9 million tenge. Nationwide, leaders have not changed – Nur-Sultan city (5.4 million tenge by SME, 1.8 million tenge by SME employee), Almaty city (5.6 million tenge by SME, 1.6 million tenge by SME employee), Atyrau region (5 million tenge by SME, 1.7 million tenge by SME employee), West Kazakhstan region (3.9 million tenge by SME, 1.3 million tenge by SME employee). The conclusion is that regions dominated by agricultural sector show less productivity levels, and those that deal with oil & gas extraction and services sectors show greater productivity levels.
Table 31: Number of acting SMEs and share in the number of all registered in districts of Kostanay Region (2019)
Share of acting District Active SMEs SMEs to registered
Amangeldy 856 96% Karasu 1,085 94% Zhangeldy 419 94% Denisov 678 91% Naurzum 459 90% Sarykol 1,203 89% Phedorov 1,553 86% Uzunkol 703 85% Karabalyk 1,328 84% Mendykarin 1,114 83% Beimbet Maylin 1,038 82% Auelikol 1,468 81% Zhetykara 1,784 81% Altynsarin 455 80% Lisakovsk town 1,518 79% Arkalyk town 2,093 79% Kamysty 405 79% Kostanay city 23,756 78% Kostanay 3,030 78% Rudniy town 6,148 76% Kostanay region 51,093 80% Source: ADB consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, and Republic of Kazakhstan, the Akimat of Kostanay region, other sources
171. Activity of SMEs is different across regional districts. The majority of entities are concentrated in Kostanay city, Rudniy town and Kostanay district. Despite small number of entities in Amangeldy, Karasu, Zhangeldy, Denisov and Naurzum districts, the share of active to registered entities exceeds 90%.
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172. The various districts of Kostanay region specialize in different economic activities (Table 32). However, agricultural and natural resources’ extraction activities (or sectors serving it) dominate.
Table 32: Economic Specialization by District Level (2019)
District Type of Activities, 5th digit of NCTA 1. Extraction of iron ore by open method 2. Cement production, including clinkers Rudny town 3. Manufacture of fire-resistant products 4. Production of electrical and electro vacuum glasses 1. Extraction and enrichment of lead-zinc ore Lisakovsk town 2. Distillation, rectification, and mixing of alcoholic beverages 1. Growing of cereals and crops, including cultivation and growing of seeds Arkalyk town 2. Breeding of cattle for meat production 1. Extraction of asbestos ore Zhetygara 2. Extraction of precious metals and rare metal ores 3. Growing of cereals and crops, including cultivation and growing of seeds Karabalyk 1. Development of gravel and sand quarries 2. Growing of cereals and crops, including cultivation and growing of seeds 3. Breeding of cattle for meat production Kostanay district 1. Wholesale trade of grain, seeds and animal feed stock 2. Growing of cereals and crops, including cultivation and growing of seeds 3. Wholesale trade of a wide range of goods without any specification 4. Wholesale trade of food products Mendykarin 1. Growing of cereals and crops, including cultivation and growing of seeds 2. Wheat seeds warehousing 3. Milk processing and cheese production 4. Wholesale trade of grain, seeds and animal feed stock Auelikol 1. Growing of cereals and crops, including cultivation and growing of seeds 2. Wheat seeds warehousing 3. Breeding of cattle for meat production Phedorov 1. Growing of cereals and crops, including cultivation and growing of seeds 2. Wheat seeds warehousing 3. Retail trade in specialized markets 4. Wholesale trade of milk products, eggs, edible oils and fats Denisov 1. Growing of cereals and crops, including cultivation and growing of seeds 2. Wheat seeds warehousing 3. Wholesale trade of grain, seeds and animal feed stock 4. Mixed farming activities (crop production, animal husbandry, services in agriculture, etc.) Beimbet Maylin 1. Extraction of precious metals and rare metal ores 2. Growing of cereals and crops, including cultivation and growing of seeds 3. Wheat seeds warehousing Karasu 1. Growing of cereals and crops, including cultivation and growing of seeds 2. Wheat seeds warehousing 3. Mixed farming activities (crop production, animal husbandry, services in agriculture, etc.) 4. Meat processing and conservation Uzunkol, 1. Growing of cereals and crops, including cultivation and growing of seeds Sarykol 2. Wheat seeds warehousing 3. Wholesale trade of grain, seeds and animal feed stock Altynsarin 1. Growing of cereals and crops, including cultivation and growing of seeds 2. Wheat seeds warehousing 3. Touristic activities of resort facilities
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NCTA = National Classifier on Types of Activities. Source: Asian Development Bank consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan.
173. Regardless of real figures we need to understand which districts’ economy are dominated by SMEs, which districts provide better conditions or where entrepreneurs are more active and perform better. In Table 33, Kostanay city and Phedorov district are in position of leaders in relative indicators. Some other districts perform vert well in some of indicators. Special attention should be devoted to SMEs operating in Arkalyk town. Economic density of 103 SMEs per 1000 EAP gives understanding of high entrepreneurship culture in the district, however this might happen out of necessity, because of lack of employment opportunities in Arkalyk. Nevertheless, Arkalyk is marked with large share of SMEs in total output, this is more quality related indicator. Overall, this table of ranks provides information to the Akimat which districts with efficient policies in place may rejuvenate entrepreneurship development.
Table 33: Relative indicators of SME development in districts of Kostanay region (2019)
Economic SME output per Share of SMEs in Share of SMEs density, SMEs one employee, total employment in total output per 1000 EAP million tenge Kostanay city 214 54% 83% 6.6 Phedorov 109 29% 56% 4.9 Amangeldy 109 15% 32% 4.3 Arkalyk town 103 20% 54% 3.5 Karabalyk 90 26% 66% 4.9 Sarykol 96 22% 52% 5.9 Rudniy town 100 28% 24% 4.8 Kostanay 85 25% 73% 6.6 Naurzum 79 18% 84% 10.7 Karasu 74 29% 75% 7.9 Beimbet Maylin 83 25% 17% 4.1 Lisakovsk town 79 19% 29% 4.9 Mendykarin 76 18% 36% 4.3 Zhangeldy 87 12% 22% 3.9 Altynsarin 75 26% 35% 3.8 Zhetykara 69 21% 39% 4.1 Denisov 69 25% 35% 3.5 Auelikol 67 17% 35% 3.0 Kamysty 58 20% 35% 4.9 Uzunkol 60 19% 31% 4.3 Source: Asian Development Bank consultants, based on statistics obtained from Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan, The Akimat of Kostanay region and other sources.
174. On country level, in terms of SME development, Kostanay region is positioned quite well a little above average figures. In total, the number of SMEs of all types has grown from 2018 to 2019 by 9.9%, the number of employed in the same period grew by 10.5% and output increased by 14.3%.
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SUMMARY: The state of SMEs in the region was relatively weak prior to COVID-19 pandemia. Now the situation has aggravated even further. At first stage HoReCa15 and trade were endangered to a risk of going bankrupt, these days as a result of chain reaction, real estate and other B2B16 sectors are in danger. B2C17 is endangered across all types of economic activities as well. Therefore, now is the time when regional authorities should be fully involved in assisting SMEs, not just tune down state support measures, but engage in negotiations between and among business groups and entities. Among legal entities there is a very small share that work independently from the state, including state owned enterprises, those involved in state procurement or that use state support measures for a long period of time. A certain group of companies work around mining sector, the «elephant in the room» - Sokolov-Sarybai Mining Association (SSGPO) JSC and other relative companies belonging to Eurasian Resources Group. The other cluster of entities represented by transportation and trade are parts of import distribution within the region or to other parts of Kazakhstan. There is a very narrow group of manufacturing, including food processing, and services that really can make a difference and play a significant role in diversification of the regional economy and gain in share of value added coming from non-extractive sectors. The interesting phenomenon can be observed at comparison of the SME sector among districts of Kostanay region. The relative figures for southern districts look much better of those of northern districts, except for Kostanay city and the relative district. This means that potentially SMEs operating in the south of the region are more competitive or that entrepreneurship is the only type of activity available to locals. This may be interpreted both as a negative and a positive observation. More survey and feedback from district entrepreneurs are needed. In terms of SME competitiveness, the contribution of Kostanay region to country indicators of SME development seems to be quite moderate along all parameters, including share in output and employment, ratio of operating entities to registered, productivity level and alike. The statistics on the number of registered entities coming from national statistics is flawed for several reasons. First, because it includes all types of business under one category Small and Medium enterprises with no differentiation between individual entrepreneurs and legal entities. Secondly, the survival rate among starting individual entrepreneurs can hardly cross 10% out of all registered within one year. The main source of upsurge in the number of entrepreneurs is the Bastau program operated by NCE Atameken, which has significant problem with mandatory registration for entrepreneurs graduating Bastau program. Therefore, the Akimat needs an alternative source of information that can provide up-to-date and relevant data on current state of SME development in the region. This source was established in the form of digital SME database and corresponding management information system.
6. Business Climate Conditions
175. There are many regional rankings that in some way or another measure business climate conditions in Kazakhstan. Some of them take into account regional environment for business. The subnational level is represented in «Doing Business» ranking of the World Bank, Ranking of regions and cities on easiness of doing business by President’s Administration, Competitiveness ranking of UNDP, and «Business Climate» by NCE «Atameken». There are some other that provide information of business climate conditions on national level and slightly touch upon regions, among them «Global Entrepreneurship Monitor» by Nazarbayev University and «Global
15 HoReCa – hotel and restaurant business 16 B2B – Business to Business sector 17 B2B – Business to (final) Consumer sector
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Competitiveness Index» by the World Economic Forum. Among all of them the most comprehensive though is «Business climate» that delivers full explanation of key factors and circumstances of doing business in regions of Kazakhstan. Nevertheless, In order to assess current business climate conditions in Kostanay region and compare to other territories we will consider all of the major existing rankings.
a. Doing Business Rankings by the World Bank
176. The latest version prepared by the World Bank assesses 10 indicators in ranking countries on ease of doing business. The latest available was issued in 2020. Overall, Kazakhstan climbed up from 36 in 2018 to 25 place in 2020 (Table 33).
Table 33: Doing Business National Ranking Indicator 2018 2020 Starting a business 41 22 Dealing with construction permits 52 37 Getting electricity 70 67 Registering property 17 24 Getting credit 77 25 Protecting minority investors 1 7 Paying taxes 50 64 Trading across borders 123 105 Enforcing contracts 6 4 Resolving insolvency 39 42 Overall 36 25 Source: World Bank. 2020. Doing Business. Washington DC.
177. Kazakhstan outstripped many countries in terms of improvements since 2018. Now, for the registration of an entity it would take half time less than in many countries of Europe, including OECD developed countries. For transferring property it would take even less than ¼ of it on average at OECD countries. Regardless of good progress there are still some barriers in the sphere of construction permits. For example, in OECD countries this process takes up to 13 procedures, in Kazakhstan 18 procedures.
178. In 2017, the World Bank assessed eight regions in Kazakhstan on ease of doing business first time, based on an evaluation of four indicators. has developed subnational Doing Business ranking for 8 regions with 4 indicators. Then in 2019 they added 6 regions. In the latest ranking we can compare Kostanay region apart from regions to 12 regions to 3 cities of national level (Nur-Sultan, Shymkent and Almaty). Almaty ranked first, Zhambyl region ranked last, while Kostanay region ranked eighth (Table 34).
179. The fastest procedure to register an entity is in Nur-Sultan, to receive construction permit in Almaty and in Kyzylorda region, to connect to electricity lines in Almaty, Mangistau and Aktobe regoins, to transfer property in East Kazakhstan and Pavlodar regions. Overall, Almaty city is the best in all four indicators of doing business, whereas Zhambyl region is the least favorable for business.
Table 34: Doing Business Subnational Rankings Dealing with Connecting construction to Registering Overall Starting a Region permits electricity property Rank Business
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(registration of an entity) Almaty city 9 1 1 1 1 Mangistau 11 4 2 14 2 Aktobe 2 9 3 6 3 Kyzylorda 8 2 6 6 4 Pavlodar 2 11 7 1 5 Atyrau 9 13 4 6 6 North Kazakhstan 12 12 5 4 7 Kostanay 5 7 10 6 8 Akmola 14 3 12 4 9 Nur-Sultan city 1 8 13 14 10 West Kazakhstan 2 15 8 6 11 Shymkent city 6 16 9 6 12 Almaty 15 5 11 14 13 Karaganda 7 10 16 6 14 East Kazakhstan 13 14 15 1 15 Zhambyl 16 6 14 6 16 Source: World Bank. 2020. Doing Business in Kazakhstan 2020. Washington DC.
180. Improvements in business climate conditions also come from initiatives of regional authorities. The Kostanay region, like some other regions, introduced systems to improve the quality of energy supply. In Kostanay and Aktobe regions entrepreneurs now prefer to register a company directly through E-Gov electronic system unlike many other regions where lawyers do it for entrepreneurs. Apart from that entrepreneurs may register as VAT payer online via E-Gov as well as many other services available online. The Akimat should continue promotion of electronic state services among entrepreneurs so that to diminish the number of direct interactions of entrepreneurs with state employees and improve positon in the Doing Business ranking. As to which areas the Kostanay region need improvements we may see in the following tables.
Table 35: Kostanay region’s position in Doing Business indicators for registration of an entity
Cost (% of Number of Number population Total Region Position procedures of days average score* income) Best performer 4 4.5 0.21 94.56 1 Nur-Sultan city Kostanay 4 5 0.18 94.43 5 Difference - 0.5 0.03 0.13 4 * Total score – A score is normalized for the range from 0 to 100, where 100 means the most advanced practice of other countries Source: World Bank. 2020. Doing Business in Kazakhstan 2020. Washington DC.
Table 36: Kostanay region’s position in Doing Business indicators for obtaining construction permit Cost (% of a Number of Number Total Region warehouse Position procedures of days score price) Best performer 17 102.5 2.2 76.47 1 Almaty city Kostanay 18 118.5 1.6 74.99 7 Difference 1 16 0.6 1.48 6
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Source: World Bank. 2020. Doing Business in Kazakhstan 2020. Washington DC.
Table 37: Kostanay region’s position in Doing Business indicators for connection to electricity lines Cost (% of Number of Number population Total Region Position procedures of days average score income) Best performer 6 71 39.3 81.62 1 Almaty city Kostanay 6 65 66.5 72.81 10 Difference - -6 27.2 8.81 9 Source: World Bank. 2020. Doing Business in Kazakhstan 2020. Washington DC.
Table 38: Kostanay region’s position in Doing Business indicators for property registration Cost (% of a Number of Number Total Region property Position procedures of days score price) Best performer 4 4.5 0.03 82.44 1 East Kazakhstan Kostanay 4 4.5 0.03 80.77 6 Difference - - - 1.67 5 Source: World Bank. 2020. Doing Business in Kazakhstan 2020. Washington DC.
181. Obviously, connection to electricity and obtaining construction permits are two fields that the Akimat of Kostanay region should work on. In general the Kostanay region is very well positioned and need just to optimize some of the procedures by either digitizing unnecessary steps for an applicant or work on operational side to reduce number of days spent on processing applications. The best solution would be establishment of geospatial system in which all land, real estate and infrastructure are plotted on the map of the region. This work is planned under Digital Kazakhstan and Nurly Zher programs, the Akimat should accelerate implementation of this project.
b. Global Entrepreneurship Monitor by Nazarbayev University (GEM)
182. The GEM is conducted every other year and includes observation of more than 50 countries. For each country the number of respondents exceed 2000 (the age range 18-64 years), apart from the entrepreneurs’ survey, an interview of at least 36 experts (acting entrepreneurs, consultants, business associations) is conducted. For Kazakhstan the latest available GEM report covers 2017/2018 time period.
Figure 34: Changes in main attitudes of Kazakhstan’s entrepreneurs in the GEM, 2014/2015 versus 2017/2018 time periods
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46.2% Intend to become an entrepreneur 15.4% 18.4% Presence of fear of failure 23.8% 50.4% Have capability to do business 26.5% 64.7% Possess capacity to do business 52.5% 69.5% Opportunity driven entrepeneurship 69.1% 17.8% Necessity driven entrepeneurship 26.4% 11.3% Level of entrepreneurship activity 13.7%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%
2017/2018 2014/2015
Source: Global Entrepreneurship Monitor, 2017/2018
183. In figure 34 we see that 64.7% of respondents are confident in their resources and knowledge to do business. Positive sign of changes in the ratio of opportunity driven entrepreneurship to necessity driven, the former constitute 69.5% while necessity driven are only 17.8% (in 2014/2015 – 26.4%). The number of people who want to become an entrepreneur has drastically changed from 15.4% to 46.2% of all respondents.
184. Overall, GEM measures entrepreneurship potential in countries. These countries are categorized into three groups: Factor (resources)-driven economies, Efficiency-driven economies and Innovation-driven economies. It is worth noting that Kazakhstan is well positioned not only within its category of countries, but compared to other groups of countries as well.
Figure 35: The level of entrepreneurship activity in all countries included in GEM, 2017/2018
Source: Global Entrepreneurship Monitor, 2017/2018
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185. If we look into regions of Kazakhstan on what drives people to become an entrepreneur we would see different scenarios for each region. Kostanay region stand out because all of entrepreneurs in the region decided to launch business due to opportunities that they encountered or saw (Figure 36).
Figure 36: Motivation to start business (become an entrepreneur) in regions of Kazakhstan, 2017/2018
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
(1) Seize an opportunity (2) Absence of any other opportunity Combination of both (1), (2) Employed, but in search of other opportunities
Source: Global Entrepreneurship Monitor, 2017/2018
186. In Figure 37 we see assessment of entrepreneurs of their own ability to overcome fear of failure. Entrepreneurs in Almaty city, Aktobe and West Kazakhstan regions show confidence in their abilities to start and develop business. Unfortunately, in Kostanay region only 2 out of 3 businessmen do not fear.
Figure 37: Personal assessment of ability to overcome fear of failure in regions of Kazakhstan, 2017/2018
Aktobe 97% Almaty city 94% West Kazakhstan 90% Almaty 88% East Kazakhstan 82% Nur-Sultan city 75% Atyrau 75% Kyzylorda 72% South Kazakhstan 71% North Kazakhstan 70% Karaganda 69% Kostanay 67% Zhambyl 66% Mangistau 58% Akmola 49% Pavlodar 43% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
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Source: Global Entrepreneurship Monitor, 2017/2018
c. Global Competitiveness Index by the World Economic Forum (GCI)
187. GCI became a single reference table of ranks for economic competiveness assessment. If we read international reviews on economic developments we would always see references to GCI. There are 140 countries with their economies evaluated for competitiveness in GCI. In the recent report (2018) the first five places belong to USA, Singapore, Germany, Switzerland and Japan. Kazakhstan occupied 59 place falling on 9 positions in comparison to 2013 ranking. GCI is composed of 12 factors, each one has equal weight in the integral index.
188. For Kostanay region the GCI is a reference point while considering support of regional exporters or working on attraction of investment into the region.
Table 39: Position of Kazakhstan in GCI ranking across all 12 factors, 2018
2013 2018 change, +/- General GSI 50 59 ranking -9 Labor market 15 30 -15 Business 94 37 dynamism 57 ICT sector 84 44 40 Market capacity 54 45 9 Skills 54 57 -3 Macroeconomic 23 62 stability -39 Market of goods 56 57 -1 Infrastructure 62 69 -7 Institutions 55 61 -6 Innovation 84 87 potential -3 Healthcare 97 97 0 103 100 Financial system 3 Source: Global Competitiveness Index, World Economic Forum, 2018
d. Business Climate Rankings
189. Atameken ranks all 17 regions, including cities of national level, by business climate conditions based on seven factors (Table 40) with 34 components and 168 parameters in them. Prior to 2019 ranking there were only five factors. Moreover, those that were left transformed in terms of components. The only one that was not changed much is «State support» component. Therefore, Business climate ranking of 2019 is the totally new and more comprehensive product than those issued prior to 2019.
Table 40: Factors Considered in Business Climate Rankings
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Factors New version Description (components) considered prior to 2019 1.Administrative 1.Administrative Regulation • Reduction of direct costs and time Regulation expenses associated with state procedures • Reduction of unofficial payments • Access to norms and regulations of state regulatory authorities • State employees’ level of expertise and customer focus • Decrease of quantity of inspections and their quality 2.Human Resources 2. Market size and access to • General state of regional economy resources and market • Access to natural and financial resources • Access to infrastructure and connectivity • Financing terms • Access to labor resources • Availability of infrastructure property for acquisition • Availability of educational resources and personnel training 3.State Support 3. State support • Information and participation in Business Road Map 2020 • Effectiveness of instruments in Business Road Map 2020 • Satisfaction with the size of state support in the Framework of Business Road Map 2020 4. Financial 4. Internal resources • State of fixed assets of an entity Resources • Gross income and presence of long- term investments by founders of business within last 12 months • Accounts receivable and accounts payable debts, as well as existing loans within the last 12 months • State of Intangible assets within the last 12 months 5. Infrastructure and 5. Market infrastructure • The level of trade infrastructure Real Estate development in the region • The level of marketing infrastructure in the region • Quality of transport infrastructure for SMEs in the region • Access (presence of companies) to district, regional, national or external markets • Lease prices of infrastructure objects 6. Technology and production • Use of modern digital technologies within the last 12 months
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• Technologic development of a region in various industries • Level of technological development and modernization of an entity 7. Development potential and • Presence of perspective plans of sales perspectives development • Investment into rehabilitation and modernization of existing production and materials & equipment base • Plans to increase income • Investment into development of intellectual property (intangible assets) • Investment into construction or new materials & equipment base Source: National Chamber of Entrepreneurs “Atameken”.
190. According to the most recent evaluation, Kyzylorda region ranks 1st, while Kostanay ranked 13th (improving two ranks from 2016) (Table 41).18
Table 41: Business Climate Regional Rankings, 2016 and 2019 Change in 2019 Rank from 2016 Region Score 2016 Region Score Kyzylorda 2.38 +13 Almaty city 3.14 Mangistau 2.38 +5 Nur-Sultan city 3.11 Shymkent city 2.36 * South Kazakhstan 2.97 Karaganda 2.34 0 Pavlodar 2.95 Almaty 2.27 +3 Aktobe 2.92 Nur-Sultan city 2.26 -4 Karaganda 2.88 West Kazakhstan 2.25 +6 Mangistau 2.88 Turkestan 2.24 -5 Almaty 2.86 Atyrau 2.23 0 Atyrau 2.84 Akmola 2.21 +2 East Kazakhstan 2.82 Aktobe 2.18 -6 Zhambyl 2.78 Pavlodar 2.16 -8 Akmola 2.69 Kostanay 2.14 +2 West Kazakhstan 2.66 Almaty city 2.14 -13 Kyzylorda 2.65 Zhambyl 2.08 -4 Kostanay 2.63 North Kazakhstan 2.01 0 North Kazakhstan 2.54 East Kazakhstan 2.00 -7 * In 2018 the South Kazakhstan administrative region was renamed to Turkestan region with the movement of regional centre to Turkestan city and establishment of Shymkent city to a separate administrative unit of the city of republican level Source: ADB consultants based on Business Climate 2019 by the National Chamber of Entrepreneurs “Atameken”.
18 In 2019, the total number of survey respondents was 3901, including 63,9% legal entities and 36,1% individual entrepreneurs (including farmers). Respondents included managers and owners of micro & small (58,2%), medium (34,9%) and large companies (6,9%). The four scale range of scores is left the same: 1 – worst score, 2 – medium score, 3 – upper middle score, 4 – good or equal to best score. The total score is based not only on survey results but also on the analysis of basic statistics on business climate conditions and private sector development in a region. The ratio in the total score is 50% Statistical data and 50% Survey results.
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191. Since 2016 the positions of regions have changed drastically. Kyzylorda region could become the leader with 2.38 score gaining up 13 positions, whereas Almaty city with mere 2.14 score lost 13 positions and occupied 14 place. Among those that are in the list of losers are East Kazakhstan region – 17 place (minus 7 positions), Pavlodar region – 12 place (minus 8 positions), Aktobe region – 11 place (minus 6 positions). The new enacted region is Shymkent city that took 3 place impromptu. Among winners are Mangistau region with 2 place (gaining 5 positions) and West Kazakhstan – 7 place (gained 6 positions from 2016).
192. Given the fact that the number of factors have changed as well as other parameters the total scores are much lower for each region. The maximum score of 3.14 in 2016 for Almaty city is far away from the max score of 2.38 by Kyzylorda region in 2019.
193. When we consider positioning of the Kostanay region along all 7 factors, then we can observe a quite mixed results. For three factors, the region took the first place (Market size and access to resources, Internal resources, Market infrastructure), fourth place (Development potential and sales perspectives, Administrative regulation) and the worst seventeen place (Technology and production) and sixteen place (State support). Let us take closer look at which areas Kostanay region need to improve given its positioning in 4 out of 7 factors.
i. Factor “Administrative regulation”
194. Kostanay region is on fourth place after Atyrau, West Kazakhstan and Mangistau regions in Administrative regulation. However, in 2016 it was the worst performer among all 16 regions in terms of efficiency of local state bodies. Kostanay region performs differently across various components of the Administrative regulation factor (Table 42)
Table 42: Positioning of Kostanay region in different components of Administrative regulation factor
State Access to Reduction Time spent employees’ Quantity norms and of direct Unofficial while level of and quality regulations costs payments, dealing expertise of state of state associated unproductive with state and inspections regulatory with state expenses bodies customer authorities procedures focus
2.95 2.76 2.92 2.9 2.94 2.95 Best (Kostanay (West (Kostanay (Atyrau (Kostanay (Kostanay (region) region) Kazakhstan) region) region) region) region) Average score (all 2.42 2.50 2.48 2.52 2.49 2.51 regions) Kostanay 2.95 2.21 2.92 2.06 2.94 2.95 region Source: ADB consultants based on Business Climate 2019 by the National Chamber of Entrepreneurs “Atameken”.
195. Kostanay region, except for direct costs associated with state procedures, is in the best positions across all components of Administrative regulation. Furthermore, businessmen indicated that the level of corruption at state bodies almost non-existent. At the same time representative offices of national state bodies in Kostanay region were highlighted for high bureaucracy. Improving operations of processes at provision of basic state services may
75 significantly reduce expenses of entrepreneurs. This is the key drawback in Administrative regulation for Kostanay region.
ii. Factor “State support”
196. Though, it is not explicitly stated, but State support component of the ranking is seen through Business roadmap state support program (BRM). In the survey the questions refer to general state support, however at clarifying questions BRM and Damu Fund are stated specifically. There are 11 parameters that measured entrepreneurship satisfaction and information availability on state support programs. Both financial and non-financial support instruments. Kostanay region position is the worst in this factor (Figures 38 and 39)
Figure 38: Positioning of Kostanay region against other regions in Effectiveness of BRM’s instruments, in scores for a region 0 0.5 1 1.5 2 2.5 3
Karaganda 2.82 Almaty 2.57 Almaty city 2.55 West Kazakhstan 2.55 Aktobe 2.51 Mangistau 2.5 Nur-Sultan city 2.48 Zhambyl 2.46 Akmola 2.44 East Kazakhstan 2.22 RoK average 2.2 Turkestan 2.17 Atyrau 2.14 Pavlodar 2.13 North Kazakhstan 2.07 Shymkent city 1.64 Kostanay 1.12 Kyzylorda 1.06
Source: National Chamber of Entrepreneurs “Atameken”. Business Climate 2019
197. Kostanay region is the last but one in Effectiveness of BRM’s instruments. This component includes not only measurement of satisfaction by the amount and time spent on receiving support, but also program operator’s efficiency (for financial support – Damu Fund, for non-financial – NCE Atameken). The Akimat acting through DEIID does not have enough influence to enhance the processes of state support instruments not only at BRM, but in most of other programs.
198. The most efficient instruments are non-financial support measures and service support. The most inefficient are search for strategic partners, credit subsidies and development of production infrastructure.
199. The other component Knowledge of state support instruments of BRM, the Kostanay region is in the same position. The low level of knowledge about the program signifies direct
76 omissions by Damu Fund that should not only provide services but inform entrepreneurs and wider audience on state support instruments. Apparently, the special promotion campaign should be launched for enhancing information availability. In addition to that Damu and Atameken should be ready to provide services in full with 24/7 schedule.
Figure 39: Positioning of Kostanay region against other regions in Knowledge of state support instruments of BRM, in scores for a region 0 0.5 1 1.5 2 2.5 3
Mangistau 2.51 Karaganda 2.16 Atyrau 2.07 West Kazakhstan 2.05 Aktobe 2.03 Almaty 2.01 East Kazakhstan 2.01 Pavlodar 1.93 Zhambyl 1.92 Almaty city 1.88 RoK average 1.83 North Kazakhstan 1.82 Turkestan 1.73 Shymkent city 1.71 Akmola 1.7 Nur-Sultan city 1.59 Kostanay 1.03 Kyzylorda 1.02
Source: National Chamber of Entrepreneurs “Atameken”. Business Climate 2019
iii. Factor «Development potential and sales perspectives»
200. For this newly introduced factor there are 38 parameters, which make it the heaviest factor of all. Development potential and sales perspectives took the last position among all 7 factors, which reflects cautious attitude of investors and businesspeople to enlargement of business operations, adding new production lines or services. Evaluation of entrance to international value chains and promotion of sales through state funds and support institution received the worst possible scores (less than 1 out of 4).
Table 43: Positioning of Kostanay region in different components of Development potential and sales perspectives factor Investment Investmen into t into rehabilitation constructi Development Investment and Perspective Revenue on and plans and and modernization development increase new sales developme of existing plans outlook materials outlook nt of production & intellectual and materials equipment property & equipment base base
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2.71 2.87 2.64 2.58 2.35 2.29 Best (West (Kostanay (Mangistau (Mangistau (Mangistau (Mangistau (region) Kazakhstan) region) region) region) region) region) Average score (all 2.10 2.09 2.01 1.83 1.77 1.62 regions) Kostanay 2.36 2.87 1.64 2.29 1.80 2.11 region Source: ADB consultants based on Business Climate 2019 by the National Chamber of Entrepreneurs “Atameken”.
201. Other than Revenue Increase outlook in all other components the Kostanay region has good positions. However, the average numbers for Kazakhstan suggest of low level of optimism among entrepreneurs in the country.
202. The low score for Revenue increase outlook can be explained by the parameter «Expenses on loans and other obligatory payments». The Akimat should find better feedback mechanisms to identify those entrepreneurs in need early on and make adjustments where necessary faster.
iv. Factor «Technology and production»
203. The survey found that nationwide technological development in the country is low. Technological development in the form of digitalization is considered to be the best in the sector of communication and information as well as in services; the lowest in machinery and manufacturing. The most innovative and up-to-date companies operate in West Kazakhstan, Kyzylorda and Atyrau regions according to survey. Digital technologies most commonly used in Mangistau and Akmola regions, whereas Kostanay region is among regions of least developed digital technologies.
Table 44: Positioning of Kostanay region in different components of Technology and production factor
Use of Level of Technologic modern technological development digital development of a region technologies and in various within the modernizatio industries last 12 n of an entity months 2.71 3.39 3.26 Best (West (Mangistau (West (region) Kazakhstan) region) Kazakhstan) Average score (all 2.55 2.50 2.17 regions) Kostanay 2.38 2.07 1.51 region Source: ADB consultants based on Business Climate 2019 by the National Chamber of Entrepreneurs “Atameken”
204. Kostanay region in all three components of Technology and production factor are in the worst three regions. In «Technologic development of a region in various industries» component is better only of Shymkent city and North Kazakhstan. For component «Use of modern digital technologies within the last 12 months» Kostanay region outstripped only West Kazakhstan and
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Pavlodar regions. In the «Level of technological development and modernization of an entity» component only one Zhambyl region fell behind by 0.05 points. In overall factor ranking Kostanay region is the worst performing territory in terms of innovation and technologies factor. At least, acting entrepreneurs see this situation without knowing much about other regions. Perhaps, entrepreneurs in the region are so advanced as opposed to their counterparts in other regions, so that they have high expectations when hear questions on technologies. However, the Akimat can take all three components and try to change the situation in the eyes of acting SMEs.
205. The latest Business climate 2019 is equipped not only with survey results data but official statistics analysis that was embedded into the final ranking. If survey results can be misleading, statistical data in the rankings in general provide genuine information. Set of indicators chosen for ranking can be disputed, but all of them in some way reflect real situation with SME development. Unfortunately, Kostanay region does not demonstrate good parameters (Table 45).
Table 45.1: Positioning of Kostanay region in different indicators of Business climate ranking part based on statistical data
Increase in Increase in Investment the number of the volumes Increase in into fixed state's of external the number SMEs capital (IFC) inspections sources in of university output increase of SMEs IFC graduates increase Average in RoK 2.94 2.54 2.38 2.18 2.11 Kostanay region 3.13 1.32 1.55 2.07 2.26 Difference (+/-) 0.19 -1.22 -0.83 -0.11 0.15 position among regions 6 15 15 9 7
Table 45.2: Positioning of Kostanay region in different indicators of Business climate ranking part based on statistical data
Increase Increase in The number Rate of tax Increase in State in the the number of SME payments the number financial share of of positive projects increase from of acting support acting court cases supported SMEs SMEs volumes entities for SMEs Average in RoK 2.09 1.98 1.96 1.92 1.67 1.4 Kostanay region 1.92 2.09 1.85 1.04 1.38 1.51 Difference (+/-) -0.17 0.11 -0.11 -0.88 -0.29 0.11 position among regions 9 6 7 16 13 3 Source: ADB consultants based on Business Climate 2019 by the National Chamber of Entrepreneurs “Atameken”
206. Considering all observed rankings on business climate conditions in Kostanay region, we can assume the following major problems with SME and entrepreneurship development:
a. Provision of basic infrastructure, especially electricity connection and construction permits;
b. Complexity of procedures of state services (number of interaction phases) that makes an entrepreneur to lose time and money;
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c. High level of pessimism among regional entrepreneurs related to inability pay off loans or find external sources of financing (investments);
d. Low level of exposure to technologies, know-how and digital solutions both in state bodies and among private entities.
SUMMARY: The relative weakness of the regional SME sector is clearly depicted in the ranking of business climate conditions in various available rankings. There are factors that the Akimat can influence directly and indirectly to enhance business climate conditions and overall environment for entrepreneurship development in the region. The Akimat can reconsider the design of all interaction channels with private sector entities, from services to inspections to delivering tailored support based on qualitative analysis. It can start working in proactive manner with entrepreneurs that work on introduction of new operational practices, innovation and productivity regimens. This group is very narrow, hence, the support that comes in large from the national government and regional resources can be easily personalized to address the needs of this small, concentrated group of business subjects.
C. Available resources and instruments for the Akimat of Kostanay region
207. Kazakhstan is a Unitarian country in which all laws and administrative regulation are designed identical for all regions, cities and settlements. This applies to all processes of state budget planning and allocation, tax and social services administration, criteria for receiving state support and type of communication between the central and regional governments, and in many other aspects. In this regard, it is of high importance to identify capacity and resources available for the Akimat of Kostanay region before providing any recommendations or initiatives.
1. The System of State Planning (SSP)
208. The System of State Planning is a complex of documents with certain hierarchy that define state policies in one or several fields. This system is designed to identify and portray state’s short- , -medium, and long-term tasks for the government and its bodies.
209. There are two basic principles in SSP:
a. Top-down method – is supposed to decompose the main strategic document with long-term objectives and on national level into more specific documents of regional importance and with short-term and long-terms objectives;
b. Bottom-up method – is the opposite of the above mentioned method and is starts from formation of regional planning documents that are consolidated on the national level into one strategic document.
210. The Kazakhstan’s SSP is a mixture of both methods. The flow «top-down» is composed of basic indicators and objectives. The flow «bottom-up» consists of so-called regional initiatives19. Both flows are supposed to meet within the State program of regions’ development as a sum of coordinated and approved initiatives on national and regional levels.
19 Regional initiatives should be developed with direct participation of ordinary people and business. Usually, those initiatives are generated within Akimat’s departments, scrutinized at the Department of budget and economic planning and then communicated through channels of budget process and Program of territorial development
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211. According to the Law on System of State planning in the Republic of Kazakhstan the SSP consists of the following elements:
a. Strategy 2050;
b. Ten year strategic plan of development, Forecast scheme of spatial development;
c. National security strategy of RoK for 5 or more than 5 years period;
d. Social and economic forecast for 5 years;
e. State programs (no less than 5 years);
f. Strategic plans of state bodies for 5 years;
g. Program of territorial development for 5 years;
h. Development strategy of national management holding companies, national holding companies and national companies with state equity share (state owned enterprises)
212. There is a difference of how many levels SSP was supposed to contain and how many levels appeared in reality (as a result of routine communication between and among state bodies).
Figure 40: The comparison of initial SSP design and actual SSP (as it is today)
Designed SSP SSP as is
1. Strategy 2050 LEVEL I. Strategic documents that 1. Strategy 2050, 2. Ten year strategic plan of development set long term vision for country’s LEVEL I. Strategic documents that 2. Concept on reaching 30 most define long-term development goals. development with priorities and 3. Forecast scheme of spatial development developed countries milestones. 4. National security strategy of RoK
1. Strategic development plan 2025 LEVEL II. Documents of high strategic (Ten year strategic plan of importance that also set long-term development), priorities, however they conform to 2. Forecast scheme of spatial documents of LEVEL I. development 3. National security strategy of RoK
LEVEL II. Documents that set parameters for economic 1. Social and economic forecast for 5 years LEVEL III. Documents that define mid- 1. President’s initiatives, addresses development of the country, region, term priorities within one or several to the nation, regular orders to the cities of national level and capital 2. State programs (sectoral) for 5 years areas of country development government. city. Also documents of intersectoral, interdisciplinary and intergovernmental character. 1. Social and economic forecast for 5 LEVEL IV. Level on which state budget years (SEF) financing meets strategic priorities. 2. State program of regions’ Funds are distributed across short-term development for 5 years (5 year period) state programs 3. State programs for 5 years
1. Strategic plans of state bodies for 5 years, 2. Program of territorial development for 5 years, 1. Strategic plans of state bodies for 5 years LEVEL V. Connection between national LEVEL III. Documents that set 3. Memorandums of understanding between the and regional level. Decomposition of measures and instruments for Government and Akimats (akims), 2. Program of territorial development for 5 years strategic indicators & initiatives, reaching indicators written on 4. Strategy of a city of national or regional level on coordination and regional initiatives documents of Level I & II. 3. Development strategies of SOEs the basis of indicators developed by the Department meet on this level of regional development of MNE and indicators stated in the plans of national state bodies, 5. Interregional scheme of agglomerations’ development
Source: ADB consultants
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213. The key document for regional authorities is the Program of territorial development (PTD). Along SSP’s hierarchy, it is situated on the bottom, the Level V. Some documents on upper levels do not consider PTDs. Strategic plans of state bodies and Interregional scheme of agglomerations’ development are among a few, whereas the Development strategies of SOEs do not correspond to PTDs and even are not visible in the current SSD.
214. PTD is developed for five-year period on the basis of all higher standing strategic documents. The region’s or city’s of national level akimat is responsible for the development of PTD. It should be coordinated with and by the Ministry of National Economy. The lower, district level PTD is formed by district authority. Then, it is coordinated and consolidated by the regional akimat. PTD includes not only economic development parameters, but also infrastructure, social policy, environmental and other aspects of regional development.
Table 46: Roles of state bodies during PTD’s development
Name Development Coordination Approval Implementation Monitoring Amendments & Control Program of Akimat of a Ministry of Regional Akimat of a Ministry of Akimat of a territorial region, National Maslikhat region, capital National region, development capital city or economy (local city or city of economy capital city or city of representative national level city of national level body) national level in coordination with the Ministry of National Economy and Maslikhat Source: ADB consultants
215. The structure for unprepared person is hard to comprehend. PTD of Kostanay region for 2016-2020 period has 159 pages with 110 target indicators and 327 initiatives and measures. The adjusted version of PTD as of 2019 has 104 pages, 47 target indicators. Out of 47 indicators come from central documents and only 7 indicators were generated by the Akimat and its divisions.
216. Another option for the regional akimat to reach overarching goals and positively affect regional development is through Memorandum of understanding between the government and the akimat. This document takes into account strategic documents of Level I and The Forecast scheme of spatial development, which in part contain all key strategic indicators.
217. Overall, SSP’s heavy structure produce dysfunctionality within organizations and along all administrative hierarchy. Moreover it doesn’t give any chance for implementation of state strategy and selected policies. There are 10 strategic program documents, 15 state programs, 16 strategic plans of central state bodies, 17 PTDs, 33 memorandums of understanding with regional akimats, 17 major city strategies and 4 interregional schemes of agglomeration development.
218. Social and economic forecast (SEF) is the most important element in SSP because the state budget is formed according to this document. Among others are state budget revenue and spending, price forecast for oil commodity, fiscal parameters, minimum calculation index, and many other financial indicators. This is the key referencing point for the Akimat to consider the
82 parameters of the regional budget and plans on spending and revenues, meaning that the Akimat should provide inputs upwards before SEF is formed; however, this is not usually the case. SEF is the document that is changed systematically within one or even more than one year time period and it doesn’t have the capacity to adjust to PTDs of all regions. This is why it works the other way. At the same time SEF should consider all inputs that reflect state support programs and priorities specified in the top strategic documents.
219. Overall, PTDs should reflect all and every direction set in SSP in all levels. PTD is the only instrument for akimats, so everything that is stated as priority in state programs should be used for justification and clarification and put into SEF through PTD. State programs settle what should and will be supported; PTD should reflect all of that through geographical allocation of those initiatives. Another option is to look closely into Interregional schemes for agglomerations development to see ways and methods for collaboration.
SUMMARY: Given the entire SSP the Akimat has two instruments PTD and SEF. Both coordinate development indicators, measures and resources needed to reach those goals. Each and every word is subject to highly complex procedures and scrutiny with several levels of the national government hierarchy. This is why it is very hard to coordinate initiatives that come from any region because quite regularly all regions are treated equally despite different development dynamics and regional unique factors. At the same time, at the planning stage regions usually overlook opportunities available to them in the form of financial resources and instruments embedded in the state support programs. Most of them are designed on «first come, first served» basis. Sometimes, state operators of these programs or of separate instruments abuse their role and provide support on micro level without involvement of regional authorities. The Akimat cannot directly influence each and every state program operator, but can use their PTD and SEF procedures to address regional needs. Fortunately, there are plenty of superior directives written in the strategic documents of high level that can be used to justify any initiative given acting state support programs described in the following chapter.
2. State programs practical to the Akimat for SME and entrepreneurship development
a. Digital Kazakhstan
220. Digital Kazakhstan program is in its first five, experimental, years. Most of the initiatives are given to regional and national state bodies for development, which means regions apart from mandatory GIS development or facilitation of broadband internet connectivity in remote rural areas may initiate their own projects. In this regard, the SME database that was developed together with ADB should be considered as part of Digital Kazakhstan development given various applications of this system.
Digital Kazakhstan to PTD
221. PTD slightly reflects the Digital Kazakhstan. At this point the continuation of this program is being developed in which many new objectives and targets will be incorporated. PTD should include some digitalization initiatives that can be implemented so that the second phase of Digital Kazakhstan include initiatives by Kostanay region as piloted and expand to other regions.
b. Nurly Zher
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222. This is the first program devoted solely to housing and utility policy implementation in Kazakhstan. It became active starting on 2020 year and ending in 2025. Nurly Zher encompasses quality water resources provision, modernization of entire residential property and utility sector, city-planning transformation mechanism.
223. Target indicators by 2025 are:
a. new floorage each year 20.7 m2 annually;
b. availability of housing - 26 m2 per person (current indicator is 23.1 m2 per person);
c. 100% access to quality water resources;
d. reduction of heat and water supply infrastructure deterioration rate to 47% (current rate is 59%);
e. reduction of wearied housing to 18.1% out of total floorage in Kazakhstan (current number correspond to 22.3%);
f. establishment of 60,000 new jobs.
224. Planned budget expenses for Nurly Zher are 4.8 trillion tenge. Many of the dedicated instruments and measures have no direct impact on SME sector, however, there are some that may influence the development of entrepreneurship in the region.
Table 46: Nurly Zher active measures that should be accounted for by the Akimat
# Measures/ Instruments Mechanism/ financial Applicability support Financing of projects on 762.84 billion tenge In order to get the money from the budget heat, water and sanitation 70% of projected the regional natural monopoly should start infrastructure renovation financing comes from digitalization/optimization projects in the or construction state budget. 15% are field of unified procurement, introduction financed by local of ERP system20, program on application (municipal) budget, 15% of anti-corrosive technologies, energy comes from a regional efficiency innovations, metering systems, monopoly (supplying etc. Therefore, some or all of the 1. heat or water) programs should be developed and, then planned (launched later after finances are in place). All of that should be approved by management boards. One or two pilots implemented. The final format for budget finance selection is an investment project with justified activities and financing.
Establishment of state 240.4 billion tenge There are two possibility points under this city-planning cadaster measure except for simplification of city (scale 1:500) planning procedures: 1) the sooner the 2. system supporting cadaster is developed the better state services for infrastructure connectivity are provided; 2) the
20 ERP - Enterprise Resource Planning
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development of the electronic system supposes engagement of many software developing and IT companies.
Regional cities: Kostanay, Rudniy, Lisakovsk, Arkalyk, all district centers should be digitized by 2024. Major rural settlements by 2025.
The Akimat should start preliminary work on attracting best talent on GIS and IT solutions development. Conduct startup events in the form of short term contents in the field of city planning and housing to prepare the environment for the main project. When an experienced company is engaged in the execution of the regional cadaster the local content should be no less than 30%.
Credit subsidies for 120 billion tenge Akimat should inform regional private private developers Acting credit lines of developers about this instrument and private developers can facilitate provision of subsidies to these be refinanced with the type of companies. 3. use of state subsidies (conditions are not known yet) Regional authorities’ bond 652 billion tenge Preliminary work for process launch. issue devoted to social Assessment and justification of needed 4. housing construction in financing. the region Technical assessment of 2,53 billion tenge Start work on municipal level with housing regional housing no regional quota management companies to provide (residential properties) information on technical parameters of 5. stock housing buildings and infrastructure and needed financing for capital renovation
Inspection of on-the- 234 billion tenge Combine preparation for this activity with ground and underground the establishment of state city-planning 6. infrastru cture of build-up cadaster (#2) (inhabited) areas Source: ADB consultants
Nurly Zher to PTD
225. Unfortunately, there is no provision of mechanism or connection in the Nurly Zher program with PTD. Some parts of Forecast Scheme of Spatial development (FSSD) migrated to Nurly Zher. So there is a link through FSSD, however the Akimat should take all indicators from Nurly Zher program with key measures, incorporate and decompose into new PTD.
c. State Industrial Innovative development program 2020-2025 (SPIID) 226. This is the third industrialization program, continuation of previous two periods: 2010- 2014, 2015-2019. The main objective that unite all three is establishment of conditions for the development and formation of manufacturing industry as the main driver of the economy of the
85 country. The principal difference of the third one is provision of resources and state support instruments to manufacturing entities in exchange for reciprocal commitment for reaching productivity and employment indicators.
227. Target indicators for current SPIID are growth of manufacturing industry from the base of 2018 to 2025 in:
a. productivity by 1.6 times;
b. volume of export by 1.9 times;
c. physical volume of fixed capital investments by 1.6 times;
d. number of acting entities per 1,000 economically active people by 1.5 times;
e. the Economic complexity index ranking21 from 78th place to 55.
228. Planned budget expenses for SPIID 2020-2025 are 781 billion tenge with no quota for regions. From that amount only 471 billion tenge will be provided to private manufacturing entities in the form of subsidized loan interest rate, support of exporters, leasing instruments, innovation grants and vouchers, credit financing of projects, and equity financing.
229. Given all designed measures, new state support instruments and target indicators of SPIID 2020-2025 (that will be decomposed on regional level) the regional authorities need to address all of that in the PTD. This have to take place by June of 2020.
Table 47: SPIID’s active measures that should be accounted for by the Akimat
# Measures/ Instruments Mechanism/ financial support Applicability
Export promotion support, including Through «KazakhExport» JSC Akimat can inform existing branding, commercial lease promotion – 55 billion tenge manufacturing companies expenses and other support (export insurance, access to on export promotion measures markets, promotion events) instruments. Include all of them into Investment Through direct reimbursement promotion media and other of expenses spent on export investment promotion promotion – 48,6 billion tenge initiatives as part of (production infrastructure industrialization in 1. expenses, premises lease, combination with Industrial marketing and sale) zone preferences for private entities. Make industrialization unit within DEIID as a focal point for export promotion instruments development, this unit will promote and
21 Economic Complexity Index (ECI) is a measure of the complexity of a country’s products. This is the ranking of countries in ECI developed by Harvard University professors Hausmann and Hidalgo
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facilitate entities to use new instruments.
Acceleration program for entities Through service support of Proactively develop the and entrepreneurs on readiness to exporters – 3,6 billion tenge regional program for export markets (product testing, (consulting, markets’ research, acceleration of external experts’ assessment of a capacity development) manufacturing companies product or service, development of to justify allocation of funds 2. individual product/service strategic from the national state development plans budget devoted to this program
Long term project financing through 157.7 billion tenge Inform regional companies Development Bank of Kazakhstan DBK - 50% of state financing on availability of long term (DBK) (other 50% from private financing. Facilitate sources) with 7-10 period, with companies (accompany) an interest rate of no more throughout the process. than 11% with 20% participation of a borrower 3.
QTV – state participation no Develop the Triple Helix less than 20%, co-investors with local universities and 50-75%, venture management promote all and new startup 1-5%. Duration from 2 to 5 initiatives (projects, years. products, events – Hackathons, startup weekends, international experts’ visits)
4. Venture financing through venture funds of the «QazTechVentures» JSC (QTV)
Long term financing through equity 35 billion tenge Inform regional companies capital of Direct Investments Fund Duration – 10 years, state on availability of long-term (through JSC «Kazakhstan Capital participation through KCM – financing. Facilitate 5. Management» - KCM) 49%, total amount of equity companies (accompany) financing between 1 and 5 throughout the process. billiontenge Long term leasing financing for 80 billion tenge equipment replenishment through own initiator’s participation no «DBK-Leasing» for entities working less than 15% and with within priority sectors equipment overall cost no less 6. than 80 million tenge (for light industry subjects no less than 50 million tenge). Interest rate – 5%. Leasing for machine-and-tractor 13.5 billion tenge (buses, heavy tracks, agro Duration – 7 years, interest machinery, other) train rate – 7%. Balance between 7. replenishment through «DBK- state and private sources Leasing» 50/50. Advance payment no less than 15%
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Leasing for purchase of auto 39 billion tenge Develop Joint Action plan vehicles through «DBK-Leasing» Duration from 3 to 5 years, with Sary-Arka Autoprom with an interest rate of 3% and machinery to promote this 8. with advance payment of 30%. program throughout Kazakhstan.
Subsidies for interest rate 28.7 billiontenge for both The list of all entrepreneurs remuneration under acting loans instruments who need credit financing through Damu Fund Subsidies - up to 6%, period of work out with the a loan for fixed capital management of Damu investments - 7 years, for Fund and Second Tier working capital financing – 3 Banks (STB). Gather risk years assessments from STB on those potential borrowers, 9. Credit guarantees – for no see what are the barriers in more than 50% of a loan each case and assist these amount of up to 3 billion tenge, entrepreneurs through new 20% for credit lines from 3 to 5 instruments of SPIID and billion tenge Business Roadmap to get affordable financing
Stimulation of 6 cluster formation 4,5 billion tenge (for all 6 Develop joint action plan development (one in Kostanay clusters) with Kostanay region’s region is flour-grinding cluster) The centers of cluster center of cluster formation. development in Kostanay Engage at least two Akimat region will be direct receiver of associates to foster the development funds. The development of the regional 10. money should be spent on cluster development of links among cluster members, capacity development programs, value chain development, knowledge spillover, etc. Innovation vouchers 109 million tenge Revisit R&D activities at No more than 20 thousand regional universities and euro per one project for innovation centers. financing of prototyping, Promote new instruments 11. product/service testing and among academia and validation, feasibility studies, companies with R&D digitalization of production departments processes Innovation grants 637.5 million tenge Develop the Triple Helix For products and services with with local universities and unique innovation elements promote all and new startup (know-how) initiatives (projects, products, events – 12. Hackathons, startup weekends, international experts’ visits)
Source: ADB consultants
SPIID to PTD
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230. At this point PTD does not reflect indicators and instruments of SPIID neither previous ones nor the new one. PTD need to be adjusted to address SPIID 2020-2025 with all the possibilities that the new SPIID provides.
d. The program of territorial development 2020-2025
231. In the program, the emphasis is on competitiveness of regions through population’s quality of life improvement and controlled urbanization. By now the development of the second phase was finished, the previous one 2016-2020 ends this year. In the program 2020-2025 the focus is on synergy that should be built around «Growth Poles».
232. As opposed to previous administrative division, in 2020-2025 the administrative division is set according to OECD22 standards on 5 levels:
a. functional city districts of 1 level (FCD-1) – 4 major cities of Kazakhstan (Nur- Sultan, Almaty, Aktobe and Shymkent);
b. functional city districts of 2 level (FCD-2) – all regional centers except for 4 major cities;
c. urban settlements of 3 level – mono- and small towns;
d. rural settlements;
e. border settlements.
233. The priority will be given to the following directions:
a. the development of 18 largest cities and 34 mono- and small towns;
b. with reference to new program Auyil El Besigi - the modernization of 1,150 anchor rural settlements and 2,327 satellite rural settlements;
c. 90% of people living in rural areas (around 7 million people) should get access to quality infrastructure;
d. introduction of the System of regional standards (livability) for 51 cities, 32 district centers, 36 rural settlements through development of infrastructure of essential services (water, electricity, roads, soft infrastructure).
234. According to new parameters:
a. the Kostanay city as FCD-2 will include 24 neighboring settlements, including the city of Rudniy;
b. mono- and small towns of Kostanay region, including Arkalyk, Zhetykara, Lisakovsk and Rudniy have different potential indicators of economic development: low, medium, medium and high, accordingly;
22 OECD – Organization for Economic Cooperation and Development
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c. five district centers of Kostanay region are among rural settlements which are financed through first phase of Auyil El Besigi program.
235. There are three major target indicators for the program of territorial development: (i) rate of urbanization – from current 59.5% to 62.6% by 2025; (ii) GRP per capita discrepancy among regions from current 3.1 times to 2.7 times by 2025; (iii) growth of real income level from current 12% to 42.3% by 2025.
236. Key indicators the program of territorial development directly linked to Kostanay region:
a. increase of urbanization rate from current 55.6% to 58.7% by 2025
b. growth of real income level from current 25.5% to 76.6% by 2025.
c. development of FCD-2 – Kostanay city on population from current 245.2 thousand people to 254.4 thousand people by 2025;
d. development of FCD-2 – Kostanay city on investment to fixed capital from current 44.8 billion tenge to 69.5 billion tenge;
237. The total amount of budget expenses sum up to 413 billion tenge. Local budgets will provide 94.6 billion tenge (23% of total), out-of-budget sources - 0,97 billion tenge (less than 0.2% of total) and the rest 317.4 billion tenge of central state budget.
238. Auyil El Besigi program that takes on some of the Territorial development program’s target indicators for rural settlements’ development is financed in the amount of 90 billion tenge for 2019- 2021 period. 4.7 billion tenge or 15% will come from local budget. 52 settlements, including 5 from Kostanay region will be supported through development and renovation of the road, communal and social infrastructure. On average 670 million tenge will be spent on each rural settlement.
239. Some of state support instruments and target indicators of the program of territorial development had been already decomposed on regional level and directed to particular settlements. However, regional authorities need to address some of that in the PTD.
Table 48: Territorial development program’s active measures that should be accounted for by the Akimat
# Measures/ Instruments Mechanism/ financial Applicability support Implementation of anchor Out-of-budget expenses or All PPPs should be revisited investment projects in mono- and Public-Private Partnership and updated, then small towns agreements coordinated with central state bodies as a part of the 1. Program of Territorial development
Coordination and approval of joint For all regions without The Akimat will make an development plans by different direct state expenses analysis of needed regions infrastructure connectivity 2. with other regions of Kazakhstan. Then initiate joint development plans with
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these regions including assessment and justification of required financing. Of particular importance is the program with the city of Nur- Sultan (agglomeration) in which Kostanay region may play a role of transit hub for products/services exports from Nur-Sultan or an extension of touristic routes developed for Nur-Sultan agglomeration.
Geological explorations to enrich 6.9 billion tenge There are certain areas in mineral resources base of mono- through JSC the south of Kostanay region towns «KazGeology» which haven’t been extensively explored. However, some parts of geological deposits were 3. mapped. The Akimat should approach JSC «KazGeology» to include its three south districts into geological exploration plan.
Development of engineering 46 billion tenge The Akimat should launch an infrastructure in mono- and small open survey for 2 months 4. towns among business of all State of road and communal settlements that were infrastructure in mono-towns that included in this Program. are part of FCD-2: Then the Akimat will start the - Deterioration level of roads within development or revisit the settlement borders, in % (for existing plans for these Rudniy, from current 80.8% to settlements development. All 82.8% by 2025); priorities should be aligned - Deterioration rate of sewerage with major problems stated 5. systems, in % (for Rudniy, to keep by entrepreneurs. Which level of 78.7% by 2025); roads, infrastructure lines, - Deterioration rate of heat supply social objects and other systems, in % (for Rudniy, to keep issues need to be solved will level of 58% by 2025); be justified through that - Deterioration rate of water supply short-term survey. systems, in % (for Rudniy, to keep The plan of Kostanay city level of 74% by 2025) development will be tied with Development of border mono- and Rudniy development and all small towns, other settlements that surrounding rural are not part of FCDs: settlements. The - Deterioration level of roads within development plans of 5 the settlement borders, in % (for district settlements and 6. Zhetykara, from current 33.4% to Zhetykara will address the 34.3% by 2025); development of other - Deterioration rate of sewerage settlements within these systems, in % (for Zhetykara, to districts. keep level of 67.4% by 2025);
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- Deterioration rate of water supply systems, in % (for Zhetykara, to keep level of 15.4% by 2025) Livability index in rural settlements 60 billion tenge (only for according to a list of standards development and across all parameters: For renovation of social and Kostanay region (5 settlements: engineering infrastructure) 7. Auelikol, Karasu, Borovskoye, Sarykol, Phedorovka) integral index from current 64.7% to 97% by 2025 Source: ADB consultants
Program of territorial development to PTD
240. The program of territorial development is a source of development directions for the Forecast Scheme of Spatial development and includes Auyil El Besighi. The Akimat should update its PTD to include needed areas of infrastructure and territorial development of the region to PTD with references to all three strategic state programs on spatial development.
c. Nurly Zhol
241. Nurly Zhol program is aimed at the development of transport infrastructure, logistics and connectivity among regions. This is the second phase after the 2015-2019 was completed last year, the new one 2020-2025 added supporting ecological and IT infrastructure along with the transport infrastructure development, apart from that becoming transportation hub between Europe and Asia is the cornerstone of the entire program.
242. The new Nurly Zhol is marked with the growth in the following indicators by 2025:
a. «Transport and logistics» sector’s value added to 21.9% from the base year of 2019;
b. «Transport and logistics» sector’s productivity to 39.9% from the base year of 2016;
c. «Transport and logistics» sector’s investments into fixed capital by 308% to the base year of 2016;
d. The number of employed throughout the next 6 years will be 550.7 thousand people, among which 48.5 thousand permanent jobs and 502.2 thousand temporary jobs;
e. By 2025 the number of roads of republican level on good and satisfactory state will reach 100%, the regional and district level up to 95%;
f. Country’s position in the Global ranking of the World Economic Forum under «Infrastructure» indicator will go up by 18 positions;
g. Country’s position in the Global ranking of the World Bank under «Logistics efficiency» indicator (LPI) will go up by 21 positions.
243. The total expenses will amount to unprecedented 5 559 billion tenge. Central state budget will fund 3,795 billion tenge (68.3% of total), local budgets will provide 715 billion tenge (12.9% of total), state owned enterprises resources 330 billiontenge (5.9%), support from international
92 financial organizations - 523 billion tenge (13.7% of total) and the rest 720 billion tenge through PPP and private investments.
244. The development of transport infrastructure in Nurly Zhol is referred to as the key factor in the economic success of the country, specifically in terms of investment attraction, trade facilitation and private sector development perspectives. The particular attention will be paid to the making Kazakhstan an international hub for trade flows between China and Europe.
245. Though many roads and transportation objects are set for construction and renovation, there are specific routes that are written in the program as parts of plan for mandatory implementation. Some road infrastructure routes crossing Kostanay region are there as well, including: Nur-Sultan-Arkalyk-Torgay-Yirgiz-Shalkar-Kandyagash, Zhezgazgan-Arkalyk- Petropavlovsk, Atbasar-Kostanay-russian border. Apart from roads, Kostanay’s airport is set for renovation as a physical object to reach international standards including supporting systems of registration, check-out and dispatch of flights. Small scale airport for civic aircrafts will be constructed in Arkalyk.
246. For sure the Akimat follows the plan and knows how to proceed with the infrastructure projects planned in Nurly Zhol. Still, the Akimat should proactively expedite budget process and intergovernmental coordination procedures to foster all above construction and renovation projects. There are some roads that will be rebuilt on optional basis given assessment and justification prepared by regional authorities. Because of limited resources all additional infrastructure projects will be taken into Nurly Zhol on «first come, first served» basis. This is why the Akimat should prepare all necessary documentation on obtaining funds for reconstruction of the most needed routes, especially those that connect southern parts of the region to Kostanay city.
2. Acting State Support programs tailored to SME development in Kostanay region
247. Several public bodies, two state financial institutions (Joint Stock Company “Entrepreneurship Development Fund “DAMU” and Joint Stock Company “Agrarian Credit Corporation”), and the Regional Chamber of Entrepreneurs “Atameken” are involved in SME development in Kostanay region by executing various state programs.
248. The government has two large nationwide programs aimed at promoting entrepreneurship: i. Productive Employment and Mass Entrepreneurship Program (Yenbek) for 2017– 2021 (started in January 2017 to support employment and labor productivity); and ii. Business Roadmap 2020 (launched in 2010 and subsequently updated).
249. In addition, the government has conditional financing through financial organizations instrument, regional program only for Kostanay region called KosKoldau and funds numerous programs under Agribusiness 2020.
a. Conditional financing through placement of funds at financial organizations (STBs, MFIs)
250. Along with the Business Roadmap program this one provides financing through STBs and MFIs on special terms and is operated by Damu Fund.
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251. Terms and conditions are contained in Table 49.
Table 49: Conditional financing through financial crediting organizations
SME type Maximum Interest rate amount Manufacturing up to 1,850 6% industries million tenge Regional entities up to 400 million 8,5% tenge For all types of up to 8,000 MCI23 6% economic activities (minimum calculation index) Sources: Akimat of Kostanay Region; Damu Fund.
252. There are 1,633 borrowers in Kostanay region with total loans amount of 153.6 billion tenge as of 1 August 2019 under Conditional placement funds at financial crediting organizations.
b. Productive Employment and Mass Entrepreneurship Program
253. Yenbek has three components: i. provision of technical and vocational education and short-term vocational training; ii. development of mass entrepreneurship (“Bastau”); iii. development of the labor market through the promotion of employment and mobility of labor.
254. Under the second component of Yenbek, Atameken conducts a special entrepreneurship training program. As of March of 2019, 43,345 people from 160 districts have entered the program in Kazakhstan. There are 12 educational modules per one trainee, including business idea generation process, marketing basics, available state support measures, financial planning, taxes administration, accounting, and other. All theoretical information is supported by examples from real entrepreneurs or cases. Altogether one trainee should get 80 lecture hours and 120 personal consultations during and after the core program is over. The program lasts for 25 calendar days. First-time entrepreneurs together with a business-trainer select suitable project, then he/she is accompanied for at least one year by personal business-trainer and regional Atameken representative. All of that time is devoted to develop a business-plan, preparation and application to financial organizations for loans.
255. This first-time entrepreneur then is registered as an individual entrepreneur and can apply for special loan and grant financing instruments. These instruments are depicted in the following tables.
Table 50: Credit financing instruments designed to support first-time entrepreneurs under Yenbek program
Special terms Maximum Interest rate Loan period amount Entrepreneurs from urban area, with grace period no more than 1/3 of up to 6,500 MCI 6% up to 5 years loan period
23 For 2020 the Minimum Calculation Index is 2 651 tenge
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For a member of low-income or large up to 8,000 MCI 4% families Entrepreneurs from rural area, with grace period no more than 1/3 of loan period Purpose of a loan: up to 2,500 MCI - for opening or enlarging existing business 6% - for establishment of credit cooperative or development of operations of existing member of up 8,000 MCI up to 7 years credit cooperative (anchor cooperation) Sources: Akimat of Kostanay Region; Damu Fund.
Table 51: Credit guarantee under Yenbek program
Special terms Maximum Guarantee amount volume First-time entrepreneurs from urban up to 85% of area a loan up to 6,500 MCI Acting entrepreneurs from urban up to 50% of area a loan Sources: Akimat of Kostanay Region; Damu Fund.
256. In 2019 Atameken piloted in all regions the new version of Bastau business for young entrepreneurs «Zhas Kasipker» (Eng. - young entrepreneur). The audience are young people within 18-29 age range. Those trainees who generated projects as a result of passing the program can apply for grant financing up to 200 MCI. Zhas Kasipker is an outbreak of Bastau business training program but the former doesn’t cancel the latter.
257. In Kostanay region 192 loans had been distributed totaling 2.2 billion tenge (more than 60% from Trade and Services economic sectors) as of September 2019. Credit guarantees were provided to 92 projects that amounted to guaranteed amount of 402 million tenge.
b. Damu-Optima
258. Damu Fund established its own small-scale program Damu-Optima particularly focused provision of credit guarantees for first-time entrepreneurs with loans not exceeding 30 million tenge, for acting entrepreneurs with loans not exceeding 180 million tenge. Both types of entrepreneurs may apply for up to 85% of a credit guarantee amount.
259. In Kostanay region 26 projects received credit guarantees of 308 million tenge as of September 2019
c. Priority projects under Economy of Simple things
260. Damu Fund operates this program under SPIID program. Loans are provided to medium size companies working in manufacturing industry. The following instruments are available:
a. Credit guarantees of projects with up to 3 billion tenge – 50% of total amount;
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b. Credit guarantees of projects with between 3 and 5 billion tenge – 20% of total amount;
c. Subsidies for the duration of a loan 7 years for investments and for the duration of a loan 3 years for replenishment of working capital. Amount of a subsidy - 9% out of commercial interest rate.
261. As of September 2019, 3 projects were subsidized in Kostanay region with the credit loans of 163 million tenge, and 4 projects’ loans were guaranteed with total guarantees of 61.3 million tenge.
262. In Kostanay region under the Program of Economy of Simple things 4 projects received credit guarantees of 61.3 million tenge (credits totaling 127.2 million tenge) and 3 projects received subsidies with credits amounted to 169 million tenge as of September 2019.
d. Business Roadmap 2020
263. The Business Roadmap 2020 program provides financial support and nonfinancial support for entrepreneurship.
264. Financial support is provided through three main instruments: (i) interest rate subsidies; (ii) loan guarantees; and (iii) grants.
265. There are five directions of business support: (i) support of business initiatives from borrowers in a single-industry town, small town, or rural area; (ii) support of business initiatives in priority sectors or manufacturing industry; (iii) lowering currency depreciation risk; (iv) non- financial support measures.
i. Interest Rate Subsidies
266. Information on interest rate subsidies is contained in Table 52.
Table 52: Interest Rate Subsidies Provided Under Business Roadmap 2025
Eligible borrowers Any legal entity who has received a qualifying business loan in the last 12 months and which either (i) operates in a sector designated as a priority sector* or (i) operates in a single- industry town, small town, or rural area Nominal remuneration rate 14.25% (NBK’s24 + 5%) Maximum amount of subsidized (i) Direction #1 – 750 million tenge for borrowers operating in a loan single-industry town, small town, or rural area (ii) Direction #2 – 2.5 billion tenge for borrowers operating in a priority sector; (iii) Direction #2 – 2.5 billion tenge for borrowers operating in a priority sector for lowering currency depreciation risk Amount of subsidy (i) Direction #1 - for loans to borrowers in a single-industry town, small town, or rural area, 50% will be covered by state, the rest is covered by a borrower (7.1% of a rate);
24 NBK – National Bank of Kazakhstan
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(ii) Direction #2 - for loans in priority sectors 40% will be covered by state, the rest is covered by a borrower (5.7% of a rate); (iii) Direction #3 - for loans that are in priority sectors and for lowering currency depreciation risk 30% will be covered by state, the rest is covered by a borrower, for equipment or machinery leasing 40% will be covered by state, the rest is covered by a borrower (4.3% of a rate) Subsidization period Up to 3 years (for replenishment of working capital) Up to 5 years (for investments) * Priority sectors refer to sectors designated as priority sectors under the Business Roadmap 2020 or under the State Program for Industrial-Innovative Development 2020–2025. Sources: Akimat of Kostanay Region; Damu Fund.
267. As of September 2019, interest rate subsidies have been provided to 971 projects in the Kostanay region, with loans totaling 183 billion tenge. This amount constitutes 7% of all subsidies countrywide.
ii. Loan Guarantees
268. Under the Business Roadmap 2020, there are 4 programs under which Damu provides partial credit guarantees of loans made to entrepreneurs (Table 53).
Table 53: Guarantee Programs Under Business Roadmap 2025
Special terms Maximum Guarantee Loan amount size* guarantee period First-time entrepreneurs working in up to 60 million priority sectors from the regional up to 85% up to 5 years tenge for loans center (Kostanay city) devoted to Acting entrepreneurs working in up to 1 850 million investments priority sectors from the regional up to 50% tenge center (Kostanay city) up to 3 years First-time entrepreneurs working in up to 60 million for loans any industry from a single-industry up to 85% tenge devoted to town, small town, or rural area working Acting entrepreneurs working in any up to 180 million capital industry from a single-industry town, up to 50% tenge replenishment small town, or rural area * up to 20% is guaranteed by a regional authority (The Akimat) Sources: Akimat of Kostanay Region; Damu Fund.
269. As of September 2019, loan guarantees had been provided to 379 projects in Kostanay region, with loans totalling 15.5 billion tenge. There are only two banks that provide credit guarantees in Kostanay region (in 5 major urban settlements only).
iii. Grants
270. Under the Business Roadmap 2025, akimats provide grants to entrepreneurs (Table 54).
Table 54: Grants Provided Under Business Roadmap 2020
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Eligible recipients All entrepreneurs who have completed the one-month “Business Advisor” training program provided by Atameken and can provide personal property of at least 10% of the project amount. Maximum grant amount From 2 to 5 million tenge Selection criteria for a project Outstanding novelty, readiness for immediate launch, priority sectors set by Business roadmap 2025 and SPIID (for Kostanay city only, for other settlements with no sector limitations) Duration of a project launch No more than 18 months period Administered by Regional governments Monitored by Damu Fund Source: Akimat of Kostanay Region.
271. There are budget limits for the amount designated for one year. For 2020 only 60 million tenge will be provided to support projects, including 30 million tenge that will be given to first-time entrepreneurs.
iv. Nonfinancial support
272. Under the Business Roadmap 2020, Atameken provides four programs: (1) “business advisor”, (2) “business growth”, (3) “school of young entrepreneur”, and (4) “mentorship”.25 From 1 January to 1 October 2017, Atameken provided services under these four programs to 1,118, 62, 40, and 53 people, respectively.
273. In addition, Atameken provides short-term consultations to entrepreneurs (legal services, accounting services, tax and customs services, etc.).
274. Damu also provides nonfinancial support to entrepreneurs under the Business Roadmap 2025 through its branch offices in the regions and mobile offices. However, this support is limited to consultations (business plan development, preparation of legal documents, loan application).
d. Microcrediting by Microfinancial organization «Atameken Kostanay»
275. Atameken established microfinancial organization that operates in several regions, including Kostanay region. All districts and settlements are eligible for receiving credit funds except for the city of Kostanay. Loan tenor up to 5 years, the interest rate – 4% and is taken only once per year. No guarantees are allowed and trade sector is excluded. The maximum sum per one project should not exceed 15 million tenge.
e. KosKoldau
276. In 2016 the Akimat of Kostanay region and Damu established a regional level program called “KosKoldau”, which was primarily designed for startups and micro type of business entities. Information on KosKoldau is provided in Table 55.
Table 55: KosKoldau Loan Program Program amount 1 billion tenge (half from akimat, half from Damu)
25 Instruments include mainly education and training. Some entrepreneurs get step-by-step assistance for business plan development and legal advisory services.
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Eligible borrowers Legal entities and individual entrepreneurs in Kostanay region except for the Kostanay city; no sectoral limitations Lenders Bank CenterCredit, Halyk Bank Interest rate paid by lenders 8.5% Loan tenor up to 84 months for purchase of fixed assets Interest rate paid by borrowers Up to 8.5% Maximum loan amount Up to 20 million tenge for starting entrepreneurs; up to 50 million tenge for acting entrepreneurs Sources: Akimat of Kostanay Region; Bank CenterCredit, Halyk Bank.
277. As of September 2019, KosKoldau supported 52 borrowers with total amount of 1.3 billion tenge.
f. Hard infrastructure connectivity provision
278. Among other state support, the Akimat of Kostanay region with the assistance of district akimats and communal state monopolies provides support for connecting business objects to hard infrastructure lines, including water supply, waste water disposal, gas, heat supply, railroad dead ends, cable telephone, railroad entrance routes, electricity, septic tanks.
279. The minimum cost of a project that needs connectivity is 200 million tenge. The minimum amount of costs directly related to connectivity of an object to infrastructure is 50 million tenge, but no more than 50% of a project amount. The designated budget for connectivity in 2020 – 750 million tenge.
280. The key condition is the availability of project design documentation with positive coordination from authorized state examination and permanent employment positions.
g. The Program for support of country’s Agro sector
281. Another state program that plays an important role in Kostanay region is the Program for support of country’s Agro sector. Under this program, many farms and individual entrepreneurs engaged in agricultural activity are provided with low-cost loans by the state-owned "Agrarian Credit Corporation" (ACC). The ACC runs seven state programs (Table 56).
Table 56: Agrarian Credit Corporation Programs Program Description Agrotechnics Provides loans for the purchase or leasing of machinery. Agrocommerce Cooperation among agricultural producers. Isker Provides capacity building support under the Productive Employment and Mass Entrepreneurship Program 2017–2021 Agroexport Supports the export of agricultural products. Agribusiness Includes instruments to support plant growing, meat production, and food processing. Ken Dala Provides loans crop production. Lending for investment Uses funds from the National Fund of the Republic of Kazakhstan to fund the projects construction and installation of new buildings and equipment and the modernization of existing facilities. Sources: Ministry of Agriculture; Agrarian Credit Corporation.
282. For each program, there are special conditions of lending and leasing instruments, which are designed for individual entrepreneurs, mostly farmers. ACC may directly finance a borrower
99 or provide support through a commercial bank. Under the lending for investment projects program, loans are provided at a rate of 10% for up to 96 months.
SUMMARY: As we mentioned earlier there are many resources and instruments that are available for the regional authority to address the regional development needs, including those required for the regional private sector development. The BRM and agriculture support programs, including temporary measures stated in the Appendix 5, should be used by the Akimat on micro level with particular economic subjects. Besides, the Akimat should promote these measures among entrepreneurs and work on identification of needs that can be relieved by available support measures. On the level of spatial and infrastructure development in the coming 5 years there are so many instruments and measures to the extent that can address almost all problems with connectivity, urban and rural settlements’ development, offset negative demographic and social trends. The description of state support measures in this chapter and the Roadmap for SME and entrepreneurship development in the region are designed to highlight opportunities for the Akimat to advance not only in the development of the SME sector, but to intensify the entire regional competitiveness.
D. Analysis
1. SWOT Analysis
283. In order to define strategic priority development elements for the Kostanay region, selecting analytical tools that consider internal factors as well as the external environment is important. Currently, a number of factors affect the future development of the region. Competent positioning and correct selection of methods of work with the external environment will help determine the success of the region.
284. A PEST matrix was used to assess the external environment. The matrix served as the basis for further analysis and conclusions. The analysis of the external environment in the categories of Political (P), Economic (E), Sociocultural (S), and Technological (T) factors is based on current trends which influence or may affect the development of the region.
285. For understanding external factors, except for PEST analysis, current mega trends affecting the region are enlisted and described.
286. The long-term consequences of COVID-1926 is yet to be seen, however this upheaval is already influencing regional SMEs and entrepreneurship potential. The problems for people, country and Kostanay region in particular might be quite large, but if we consider only SME sector, then there are clear risks for business. Imposed quarantine measures would halt any movements of people and limit transportation of goods. Devaluation of tenge, increase in NBK’s effective rate, other monetary factors may substantially decrease business activity throughout the country. Moreover, lack of healthcare infrastructure and qualified personnel in the region may bring additional repercussions for authorities. In the period from 3 to 6 months the situation for SMEs would be aggravated due to the following factors:
26 Coronavirus disease 2019 (COVID-19) is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The disease was first identified in 2019 in Wuhan, the capital of Hubei China, and has since spread globally, resulting in the 2020 coronavirus pandemic
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a. Production of consumer market goods (at least at first stage) and because of shortage of import components increase in prices for final product;
b. Execution of contracts, including those for state procurement, may be discontinued. Despite the reality, formal penalties will be applied for disruption of supplies and failure to perform obligations under running contracts;
c. Full break of activity of entrepreneurs in the spheres of catering, organization of public-mass and entertainment events, tourism and other events with participation of large number of people;
d. Increase in gasoline prices and utilities would upset purchasing power of population. This may affect not only entities working in B2C27 markets, but in a chain order affect any type of business.
287. Apart from COVID-19, there are long-lasting trends and factors that influence the development of the private sector in Kostanay region.
288. Megatrends implicitly affect the region and do it in ways that the regional authority cannot predict and cannot respond to. The only way to intervene is to embrace these trends and act accordingly, using changes to improve aspects of regional development. There are five thematic groups of megatrends28 that the Akimat should consider while implementing policies in economic or social spheres, including SME and entrepreneurship potential:
a. Economic megatrends are associated with regionalization of trade and decentralization of economic power. Mass production moves to mass customization, the product production flow follows the market and adjusts to the needs of very narrow target segments. Digitalization of all market and public interactions make Big-data and so-called Geek economy a reality. Formalization of self-employment, domination of part-time job (small scale tasks) over fulltime, and simplification of taxation of such activities. Re-Industrialization of developed countries and massive industrialization of developing countries intensify the war over technical staff, engineers and technologies.
b. Technological megatrends are about penetration of digital technologies to each and every aspect of our lives. The digital technologies are no longer about software development, but about enormous datasets that these software solutions generate. Machine learning and neuron networks’ development establish foundation for movement to artificial intelligence solutions in production, state administration, sales and other activities previously attributed only to human.
c. Ecological megatrends make renewable energy sources and clean waste management not a choice, but a necessity. The demand for clean resources, such as water and air, increases. Organic food is on the top of market trends now, this in fact create demand for all above mentioned ecological factors.
d. Political megatrends are linked to a search for anti-terrorism solutions, including cyber terrorism. This situation urges authorities to establish multi-channels
27 B2C – an abbreviation used to represent Business to Consumers markets 28 To compile the list of megatrends ADB consultants used sources of McKenzie corporation and Boston Consulting Group
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communication with citizens. As a result we see massive implementation of policies that address inclusive growth. The role of mega cities increases, this makes decentralization and transition of power from national governments to regional ones inevitable. Competition for financial and human resources is a responsibility of metropoles and large cities, the national authorities are too slow to react on time and adequately.
e. Social megatrends are directed towards establishment of the «knowledge-based economy». The role of traditional educational system loses its monopoly to self- education, online platforms and lifelong education. The age structure changes not only in developed countries, but we see the same trend in developing countries. Increased number of retired people force governments across the world to reconstruct pension and social fare systems. Many people are no longer attached to one particular place for living, working or getting an education. The competition increases for human capital, today this is a resource for which everything need to be adjusted. Soft skills in creativity, critical thinking, communication and socialization are more critical in personal success of people.
289. The pace of technological and social changes increases competitive uncertainty in economy, business, labor relations, sources of income, which, in the absence of a strategic vision and a real assessment of acceptable risks, can lead to social and political tensions in society.
290. The PEST analysis’ results depicted on Table 57. PEST reflects factors generated by some megatrends, but also that have regional or country origin.
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Table 57: PEST Analysis
P E S T (political) (economic) (sociocultural) (technological) • Set of new strategic • Unobservable high CPI (Consumer Price Index) and • Negative population net - • Low level of high programs (Nurly Zher, inflation rate low birth rate, high death tech/innovation Nurly Zhol 2, SPIID 3, • Unstable national currency exchange rate rate and large migration penetration etc.) and amendments • Uneven development of Kostanay region’s districts, no to Russia and Nur-Sultan • Low use of online to current laws and spatial development policy in place • Uncompetitive income platforms and services regulations • Low indices of transport and social infrastructure level by local population • «Urbanization effects availability in the region • Low communitarian spirit. • Low involvement of local and power of • High deterioration rates of utilities Social bonding dominate entities in global supply megalopolises», • Low involvement of local entities in global supply and over bridging, inclusive and value added chains intensification of city’s value added chains networks • No substantial activities roles as opposed to • Low level of innovative production sites and • Very few opportunities in R&D regional development competitive entities exist for disabled, single • Low level of online • Weak branding policy, • Existing major markets are remote to Kostanay region mothers, other vulnerable public services and resulting in low • Primary agro / trade / transportation sectors show groups shortage of information recognition abroad steady growth. • People tend to ignore on standards and • Unitarian political and • No signs of regional economy diversification changes in legal, political, regulations for different economic system • Asymmetry of information among all regional players and economic spheres approval systems making Akimat limited (Akimat, regional reps of national bodies and • Low number of places for in power development institutions, business and society). interaction and cultural • Overdependence of • Entities spend money on working capital and cover exchange successful enterprises current expenses (survival mode) and do not invest on connections to much in innovation or R&D, OPEXs exceed CAPEXs national elites • Weak start-up or observable innovation activities in the • Proximity to large region Russian urban • Low competitiveness level of active SMEs, along with settlements high death and low birth rates of entities • Low demographic and • Domination of shadow economy and informal wage economic density payments • Absence of concentrated markets, as a result of low purchasing power and small density of economic subjects PEST = political, economic, sociocultural, technological factor analysis Source: Asian Development Bank consultants.
291. The opportunities and threats that exist in the external environment, together with the current weaknesses and strengths of the region, form SWOT components. The different combinations of strengths, weaknesses, opportunities, and threats allow priorities to be defined to develop scenarios for five year perspective, as well as identify and describe major risks.
292. Recommendations tailored to SME and entrepreneurship development will be prioritized in the Roadmap for SME and entrepreneurship development and decomposed to the Action plan for the Akimat of Kostanay region.
Table 58: SWOT Analysis Strengths Weaknesses
1. Natural resources (agriculture, mining) 1. Weak transport infrastructure, unevenly 2. Proximity to large Russian markets distributed in the region 3. Good political will of local authorities 2. Low provision of pre-school spots (not 4. High level of internal locus of control among facilities) for children operating SMEs and entrepreneurs 3. Low economic and demographic density 5. National state programs designed to develop 4. Low purchasing power regional infrastructure, economic activities, 5. Low level of awareness about Kostanay strengthening spatial development region outside of Kazakhstan 6. Availability of high education organizations in 6. Close ties of successful private entities to the region elites 7. Low competitiveness of human capital 8. Young people and highly qualified specialists leave Kostanay region 9. Low competitiveness of local SMEs 10. Few start-up activities in Kostanay region 11. Ignorance of changes in political, legal, and economic spheres among local people 12. Low level of trust to government bodies and institutions 13. Very low R&D activities among private entities 14. Low accessibility of production and warehouse premises for purchase or lease Opportunities Threats 1. Development of north conurbation Kostanay- 1. Lose of SMEs (core) critical mass and Rudniy-Lisakovsk massive loss of people with entrepreneurial 2. Become a part of growth of large spirit metropolitan area of Nur-Sultan 2. High human losses, especially among 3. Low salaries among local workforce which young men accelerates 4. brings opportunity for localization of certain 3. Commodity prices may decline or fluctuate types of production 4. State support programs fail 5. New and in-demand instruments in state 5. Agglomeration effects and movement to support programs adjacent Russian regions and Nur-Sultan 6. Innovation and start-up activities become city accelerate new point of growth for the Kostanay region 6. Absence (or loss of existing) of young 7. High penetration of digital technologies professional workforce among regional population 7. Strengthening of narrow bonding social networks, polarization across various ethnic and social groups
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8. Introduction of new technologies in the mining and agricultural sectors may result in substantial job losses 9. Nothing changes 10. Political will deteriorates 11. Inadequate positioning and branding of the region 12. Regional south abandoned by people and business 13. Absence of new points of growth 14. Increase in dependence on the state budget SWOT = strengths, weaknesses, opportunities, threats. Source: Asian Development Bank consultants.
2. Alternative scenarios
293. In generating scenarios, we consider only versions of events that may affect only SME and entrepreneurship development. The same goes to factors that may affect the situation and collectively construct one or the other scenario. In constructing scenarios we took into consideration the theory of Systems’ design29 with corresponding Causal loop diagram. The systems design is used for modelling and using input-output variables, we will not build a model but rather depict interrelation of various factors that jointly influence the situation with the SME and entrepreneurship development status in the region.
294. In a causal loop diagram (CLD) we visualized how different factors in the system are interrelated. The diagram consists of a set of nodes and edges. Nodes represent the factors and edges are the arrows that show relation between the two factors. A link marked with «+» indicates a positive relation and a link marked with «-» indicates a negative relation. Closed cycles in the diagram are very important structures of the CLD. A closed cycle is either defined as a reinforcing or balancing feedback loop. In Figure 41 we see the fragment of that system, cycle of events that takes place in subsequent manner or simultaneously. The full CLD is depicted in the Appendix 6. Factor «Households’ income» positively affects «Purchasing power», then in turn it intensifies the «Demand» factor, and so on. After all, increase in the number of Entrepreneurs increases «Employment» that positively influences «Households’ income». The balancing loop through «Stagnation» negatively affects the connecting node of Entrepreneurs (number of business entities).
295. In parallel to CLD, we constructed the Problem Tree that unlike CLD focuses more on a core problem, root causes that in conjunction generate this problem and effects that result from a problem. Whereas CLD demonstrates how different factors interact given that all factors are equal in terms of weight and influence. The Problem Tree is shown in Figure 42.
296. There are three scenarios that may take place given current state of SME development in the region, situation with the world pandemia, overall macroeconomic instability and state programs designed to facilitate the development of the private sector.
29 Systems theory is the interdisciplinary study of systems. A system is a cohesive conglomeration of interrelated and interdependent parts which can be natural or human-made. Every system is bounded by space and time, influenced by its environment, defined by its structure and purpose, and expressed through its functioning. A system may be more than the sum of its parts if it expresses synergy or emergent behavior (https://en.wikipedia.org/wiki/Systems_theory) 104
a. Inertia - this scenario means successful overcoming of COVID-19 situation that will enact the previous dynamics that were taking place before the crisis. By 2025 the population will go down to 863.8 thousand people, with the decline by 13.4 thousand people from current number. The annual outflows would not be higher than 3,000 people. Temporary economic losses due to quarantine and instability with the national currency would be supplanted by the beginning of 2021. Annual GRP growth would be stable but not very high. In 2025 the GRP per capita would hardly cross the point of 2.8 milliontenge.
b. Breakthrough – this scenario means successful overcoming of COVID-19 situation, full implementation of all state programs, including those devoted to support SME development and execution of the proposed Roadmap for entrepreneurship and SME development in Kostanay region by ADB. The key achievement would be 35% share of SMEs in the regional gross product, 5.6 percentage points from current 29.4%. The population will cross the population mark of 900 thousand people with urbanization rate of up to 60%. This will happen due to the development of connectivity along Kostanay-Rudniy-Lisakovsk conurbation and ability to diversify economic activities in Arkalyk town and other southern districts. Regional gross product would grow by 161% in real terms to the GRP of 2018 and would hit 3.3 million tenge per capita in 2025.
c. Depression – in this scenario all negative factors play in full. Major urban settlements would be closed for quarantine, among SMEs only those from agriculture and food processing would be working. All other in B2C sector would vanish and go bankrupt. The GRP would fall by 6% as a result of current instability, total collapse of B2C sectors. Subsequently, Trade will fall by 10%, all services by 70%, construction would lose 50% of its activities and transport and warehousing almost 60%. By 2025 these sectors would add in volumes, but the previous steady growth dynamic of Construction, Transport and warehousing, Manufacturing and Trade sectors would be lost for quite some time. Half of all people employed by legal entities – 40 thousand people and 80% employed by individual entrepreneurs – 55 thousand people would lose their jobs. Signifying the collapse of local labor market, which would have only 48% of EAP employed. The rate of unemployment would be more than 10%, with the share of self-employed more than doubled. As soon as the borders become open as a result of migration the region would lose another 17 thousand people by 2025 and the total migration net would be 30,000 people. The share of SMEs in the regional economy would not be higher than 15% for at least 5 years.
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Figure 41: Part of causal loop diagram with factors affecting SME and entrepreneurship development Demand Markets
Purchasing power + +
+ + Supply Reinforcing Households’ income loop Market + competition +
Bankruptcy + Entrepreneurs/ non- Employment resource business +
Stagnation + Balancing + Job market + loop Crisis
Unemployment _ Changes in earnings & + expenses structure _
Source: ADB consultants
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Figure 42: The Problem Tree of low level of SME and entrepreneurship competitiveness in the Kostanay region
Unemployment rate is high, number of self-employed increases
Low attractiveness Volume of investments Demographic net balance Low tax base, no signs of Effects and competitiveness into fixed capital and FDI is negative, migration Import of consumer goods grow economic growth of the region diminishes outflows grow
Dependency on extractive Low competition in B2C Quality of goods and services sector remains high markets diminishes
Low level of SME and entrepreneurship Core problem competitiveness in the Kostanay region
Low access to Low business skills, Low demand, no Control and Improper performance of Corruption/bribery/rent finance for lack of experience, markets for goods and regulatory state the SME state support seeking behavior entrepreneurs low professionalism services functions programs
Absence of Information Bureaucracy/Red tape State support programs Causes alternative assymetry financing sources Market concentration of people and entities is Fear of failure/ fear of State management Low level of low Lack of experience responsibility system/ work practices professionalism
Increasing STB’s high interest Connectivity among migration flows, Incentives to tie up to Low salary of regional Frequent turnovers of rates and requirements districts and settlements Bonding effect over negative small groups state employees state employees on collateral is low Bridging population net (tribalism, nepotism)
NBK’s prudential norms and monetary policy/ Diminishing quality Deterioration of hard Cultural traits and social practices of life and social infrastructure norms Proposed scope of the Roadmap
Source: ADB consultants 107
3. Risks for private sector development
297. Amidst the world pandemia, the government is ready to take on serious measures in preventing any physical connection to other countries, among regions and within settlements. It means termination of all business operations regarding movement of goods and people. This situation will definitely be reflected on the main driver of the regional economy – trade sector and services in B2C. Apart from that HoReCa and construction sectors will not develop as they had been developing previously. Another problem came on from monetary conditions of the economy, the exchange rate of tenge to key currencies has dropped significantly in the wake of oil price decline. Therefore, key risks are already in play.
298. The Government of Kazakhstan is under stress and doing its best. To support business, they established special tax preferences for SMEs. In addition to that one trillion tenge will be added to existing credit financing support programs (credits will be provided at 8% effective rate) and 600 billion tenge for supporting working capital (at 6% effective rate). However, for SMEs now is more important sustainability of existing demand or some part of it necessary for survival. Another circumstance relates to the risk of massive termination of employment. The Akimat should act proactively and quickly, not only by executing directives from the National government, but also by reacting to any problem of any single entity or individual entrepreneur on «here and now» mode. The full list of current state support measures is described in the Appendix 5.
299. The existing problem with the information asymmetry may strike even harder under current circumstances. All types of communication channels for instant feedback should be used. To be more efficient the Akimat should closely cooperate with the regional NCE «Atameken», Damu Fund, KazAgro representative offices, customs and tax authorities.
Table 59: Risks to SME and entrepreneurship development in Kostanay region Direction Name of a risk Implications Likelihood Period COVID-19 Stop of interregional Low availability (including high Short term and transportation price) of imported parts, currency movements. resources and semi- exchange manufactured materials, Block of the perimeter of rate parts, especially of Chinese large urban settlements imported parts for Sary- in the region. Arka Autoprom Reduction of purchasing Significant reduction of high Short term power demand:
1. HoReCa sector, 2. Construction sector, then because of purchasing power decrease halt of production at Sary-Arka Autoprom. Afterwards, transportation & warehousing and trade sectors will suffer. 3. Global reduction of demand for metals will be
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reflected on ERG operations
About 200 thousand people medium Short term of EAP working in Trade, HoReCa, industry sectors, including self-employed, are under risk of real unemployment. Demography Low birth and high death Demographic growth gaps very high Risk is already rates and regional disproportions unfolding and will (the most productive EAP intensify will leave, whereas socially vulnerable elderly people and disabled would grow) Low productivity of Social tensions high Risk is already horizontal policies for unfolding and will employment stimulation intensify and social support measures
Mass departure of urban Loss of a modernization medium Risk is already population, kernel unfolding and will predominantly Russian intensify Reduction in the number of speaking, including SMEs and entrepreneurs kazakhs to other countries New demographic wave Increasing load on social medium High of children infrastructure, including pre-school facilities, Children’ age distribution schools (one of the worst as of 2019 proportions of pupil to (0-5 years – 61.4 teachers) and healthcare thousand) (6-9 years – 60.4 thousand) (10-14 years – 54.5 thousand) (plus people that migrate tend to have families with many small children)
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Spatial Poverty increase in the Shortage of skilled labor in high Medium term development agricultural districts and agriculture (movement to Long term increase of population industrial and services
outflow from these sectors territories to large cities Population aging in rural
areas against shortage of quality healthcare in the region Intensification of Disproportional high Risk is already migration outflows from unfolding and will Disproportionate population border districts to Russia intensify (re)settlement and labor or elsewhere distribution
Ever increasing death rate
in rural area due to
deteriorating living
conditions, lack of
healthcare specialists
Inability of the regional The outflow of young high Short term educational system to people for quality education Medium term catch on large urban elsewhere settlements (Nur-Sultan, "Brain drain" Almaty, Karaganda, Russian cities). Decrease in the number of Enlargement of the IT startups and new young educational lag entrepreneurs Decline of regional competitiveness in economy and in social sphere Loss of «just-in-time» Increase in the share of the medium Medium term information flow with "non-observed" economy remote areas and Intensification of self- human settlements employed share (especially young people) Inability to properly allocate resources in the implementation of economic and social policies at the level of all types of settlements Deterioration of transport Enlargement of gaps in medium Medium term interregional and inter- economic development and district connectivity loss of sources for economic growth and final loss of economic potential.
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Low economic density, low concentration of business entities Economic Long period of Low productivity and direct high Long-term macroeconomic losses from unexploited instability because of low economic potential commodity prices The decline of business activities in all sectors including extraction of resources and dependent sectors Inability to fill the Industrial zone in Kostanay city Increase in the Disruption in high Medium term misalignment and weak implementation of state coordination among programs state bodies Direct losses of state budget Corruption Growth of real and Worsening of financial high Risk is already nominal interest rates for stability among population unfolding and will borrowers and business intensify Low «birth rate» of new economic subjects Deterioration of loan portfolios of financial organizations Drastic depreciation of Dollarization high Taking place the national currency already Low economic activity Intensification of real inflation rate Decline in population income Corrosion of trust to the government initiatives and acting policies, including the Akimat and all state representatives Savings and transactions take place outside of official observable systems Increase in the shadow Growth of off-the-book medium Short term
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economy wages Inequality growth in society, reduction of social protection capability of the Government Increase in transactions outside of official observable systems Increase in social Intensification of vicious high Medium term payments load cycle of dependency on state among people Growth of social injustice to trigger less motivation to do business and pay taxes Increase in the number Formalism over actual medium Long term of inter-governmental implementation of change procedures, coordination Low efficiency of state points, other regulations, policies and programs especially in budgeting process and execution of fiscal policy Low to no innovation Delay in technological high Short term activities among existing development and loss of entities and emerging existing economic potential startups Dependence on natural Increase in the number resources sector high Short term of SMEs dependent on Imbalances in economic the state through development leading to low procurement, state productivity in lagging support programs, etc. industries and consequently low labor quality (e.g. agriculture) Loss of a modernization kernel Back-log of new road Loss of transit potential low Medium term commissioning and repair of existing routes Market loss of the Regional and state budgets low By the end of Russian market by failure 2020 Sokolov-Sarybai Mining Closure of social programs Association (SSGPO) JSC due to contract Increase in unemployment termination with rates Magnitogorsk Metallurgy Complex
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Socio- Further reduction of Partial or complete high Short-term political state bureaucracy’s dissatisfaction with the efficiency. Inability to state policies (economic, change and optimize socio-political, potential operations growth) of wide population mass, which can lead to destabilization and social unrest Inability of the economy Increase in NEET30 youth medium Long-term to generate jobs Radicalization among youth Low level of school education, discrepancy in educational level (urban vs. rural, language, income) National and local Failure to satisfy growing low Medium term budget defaults due to needs of population and external factors, low tax business collection or poor budget planning
E. The Roadmap for SME and entrepreneurship development in Kostanay region (Roadmap)
300. Usually, the roadmap is represented visually as a Gantt chart31 or a graphic schedule with horizontal timeline and several layers. Each layer represent either the tasks or activities grouped into specific themes. The roadmap is a strategic instrument, it is not a strategy per se.
301. In order to provide more information and avoid overloading of the visual representation of the Roadmap we will describe layers and their contents in a text format, mark them with letter and digit denotations. Thereafter the visual version of the Roadmap in the form of the timeline will be presented.
302. Among considered scenarios, the Breakthrough version will be planned for the designated Roadmap. Other scenarios are taken into account as those we plan to avoid.
303. The following parameters are set for the Roadmap:
a. Main objective is to reach 35% share of SME sector in the regional economy (Gross Regional Product)
b. Tasks:
30 NEET – acronym widely used by economists to signify young people who are not engaged in Education, Employment, or Training activities 31 Gantt chart is a bar chart that illustrates project or implementation plan schedule 113
i. Improve the capacity of Akimat’s personnel, specifically in the departments that frequently interact with entrepreneurs;
ii. Simplify processes of state services provision, especially in delivery of land use permits, construction permits, utilities’ connectivity to production and/or services facilities and state procurement procedures;
iii. Increase and diversify sources of financing for SMEs;
iv. Improve access of SMEs to information on markets, state policies and initiatives, and other possessed valuable to private sector development data;
v. Increase the number of innovative SMEs and share of investments into fixed capital of innovation among regional private entities;
vi. Improve the level of connectivity between large urban settlements, including reduction of time spent on commuting by people;
vii. Increase the population net in the region by decreasing migration flows to other regions and improving social infrastructure (livability conditions);
viii. Decrease the death rate among SMEs by improving feedback mechanisms with acting entrepreneurs and engaging other state bodies and institutions;
ix. Facilitate market concentration of business entities and people, including growth of urbanization rate in the region.
c. Object of activities – SMEs and entrepreneurship potential
d. Subject of activities – The Akimat of Kostanay region
e. Timeline – 5 years from 2020 to 2025
f. Responsible or assigned parties will be described in terms of the Akimat of the Kostanay region and its counterparts (district authorities, representative offices of national state bodies, development institutions, NCE Atameken, subsoil users, large companies and SMEs). In all initiatives the Akimat is a principle implementer by default, all other parties participate;
g. Needed resources will be described in terms of sources used (state budget, regional or municipal budgets, private sources).
304. It should be noted that through the survey we found that transportation and warehousing, trade and other services (primarily B2C) are marked with high competition. At the same time these particular sectors had been key contributors to the gross regional product growth (Figure 4) in recent years. Hence, high competition in sectors make these sectors successful.
305. The share of SMEs dependent on state procurement, permanent state support measures (serial receivers) and with state participation should be reduced. Basically these companies cannot compete in open markets, do not show high productivity and rarely produce quality
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products or services. Therefore, they will not be able to compete without state interventions that usually distort market mechanisms and diminish economic potential.
306. Low level of innovative activities among private entities and state bodies cannot be solved artificially. Authorities can work only in bringing innovative spirit to the region by facilitating cooperation and exposure of local entrepreneurs to best practices outside of the region. In parallel bringing and showing problems that exists in the region to entrepreneurs, external high tech companies and regional academia (universities and alike).
307. Competitiveness of a region can be defined as a set of institutions, policies, and factors that determine the productivity of the region, taking into account the level of its development, aimed at successful competition and to improve the standards of living of its inhabitants. Despite the importance of primary factors in the form of natural resources, favorable geographical position or demographic positive factors, regional competitiveness is critically dependent on the ability of the territory to generate and develop specialized factors such as human and social capital, specialized infrastructure, competence centers that allow the emergence of positive externalities, agglomeration and cluster effects. Therefore, the development of institutions and policies should be aimed at the stimulation, cultivation, and development of specialized factors in Kostanay region.
308. The full version of the Roadmap is represented in the Appendix 1. Since there are many initiatives and as we understand the Akimat is limited in resources and capacity, the prioritization of these initiatives based on two criteria is proposed. First, complexity to implement an activity. The higher the complexity the lower is a priority for a given activity. Second, relative value it can bring to the competitiveness of regional SMEs and growth of entrepreneurship potential in the region. With Little effect, Strong effect and Moderate effect attributed to each initiative. The priority of initiatives matrix is illustrated in the table A1.1 in Appendix 1.
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Appendix 1
Appendix 1 THE ROADMAP FOR SME AND ENTREPRENEURSHIP DEVELOPMENT IN KOSTANAY REGION
Small and medium enterprises in Kostanay region are significantly limited in development by internal and external conditions: low market concentration, territorial development disparity, low level of trust among all constituencies operating in the region, specifically between SMEs and state authorities. Among others traditional problems with the access to finance, access to human resources and access to information are also addressed.
More than 42 initiatives that could be taken by the Akimat or development partners to promote the development of SMEs and individual entrepreneurs in Kostanay region are represented in the following Roadmap for SME and entrepreneurship development (Roadmap). Because sources of financing and resources available to the Akimat are very narrow we suggest to conduct series of consultations with Astana International Financial Center (AIFC) and several International Financial Institutions (IFIs), including Asian Development Bank, World Bank, European Bank for Reconstruction and Development, UN group of organizations and other in supporting some or all activities stated in the Roadmap according to proposed priority groups.
Since almost all initiatives are usually financed from the State budget - the only source - in the event of financial instability or more pressing needs, all such instruments are at risk of being eliminated. The programs lack the tools to engage other stakeholders in supporting entrepreneurship. Excessive dependence on state subsidies has become a catalyst for the development of business dependency: in such conditions, the fundamental motivation of the entrepreneur to collect the necessary capital and have sustainable future is significantly decreasing.
Entrepreneurship, driven more by sustained public interventions, cannot take on competitive and healthy shapes. Activities present in the Roadmap are designed so that to decrease the influence of the state in the market.
The Roadmap consists of 4 thematic areas all devoted to the development of private sector in the Kostanay region. Initiatives developed on the basis of all sources, analysis presented in previous sections and ADB consultants’ expertise:
1. Access to finance 2) Spatial development and competitiveness of the territory 3) State services 4) SME growth and competitiveness
Table A1.1: Priority of initiatives matrix*
Level of complexity Low Medium High
Relative 2f, 2j, 2k, 2n, 2s, 1c, 2d, 2i, 2r, 3e, 3f, value 1a, 2e, 3c, 4d, 4h, Strong 3b, 4b, 4c, 4g 3g, 3h, 4a, 4e, 4i, 4j effect
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Appendix 1
1d, 1e, 2a, 2h, 2o, Moderate 2b, 2g, 2m, 3a 2p, 3d, 3i, 4f
Little 2c, 2l, 2g
* GREEN ZONE – priority # 1 group of initiatives; YELLOW ZONE – second group of initiatives; GREY ZONE – Initiatives of the third group Sources: ADB Consultants
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Appendix 1
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Appendix 1
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Appendix 2
Appendix 2 Functional city districts (Kostanay city) Functional city districts - 2 Indicators Description Weight Value Calculation Condition 1 Spatial 0.2 Number of active SMEs per 1000 square meters Economic density Number of economically active population by area of total square meters Demograhic density Population density, people/sq.m. Proximity to other settlements, average time on a road within radius of 2 hours Number of people living in neighbour settlements Net internal migration Number of people Net interregional migration Number rof people 2 Economic 0.15 Gross Product (GP) Dynamic changes in last 10 years, % Structure of GP Growth of service sector, % gain Labor productivity Dynamic changes, CAGR for last 5 years, % Number of active SMEs Dynamic changes, CAGR for last 5 years, % Ratio of active SMEs to registered Dynamic changes, year by year (5 years), % Number of women owners Share,% Investment in fixed capital Dynamic changes, CAGR for last 3 years, % Self-sufficiency Share of state budget subvensions, % Dependencу on large taxpayer(s) Index of Herfindahl-Hirschman Share of unproductive in EAP % Changes in the number of self-employed Dynamic changes, CAGR for last 5 years, % Nominal income per capita in tenge Minimum subsistence level in tenge 3 Infrastructure 0.2 Number of routes (within the region and interregional) Transport (railroad) Average hours on s road Roads density, sq.meters transport (road) paved roads share, % Share of roads with lightning system, % Central water system coverage % Deterioration rate, in % State of utility system (water supply, canalization) Share of infrastructure that need repair Deterioration rate, in % State of heat provision infrastructure Share of infrastructure that need repair Yes/No Waste water treatment facility Share of coverage Social infrastructure (healthcare) Number of doctors and medical workers Social infrastructure (education) Share of children age 1-6 who do not attend pre-school facilities 4 Socio demographic 0.1 Natural population increase % Life expentancy at birth years Share of youth in total population % Share of social aid recipients % 5 Comfort living standards 0.05 Housing availability sq.m. per one person Squares/boulevard/gardens for recreation of residents Availability of green space for each resident within a radius of 300 (green spaces) meters Social infrastructure Walking distance 500 meters Walking distance of school 1,000 meters Средние значения в зависимости от удаленности Clinics 1,000 meters Center for state services 2,000 meters Commercial infrastructure Sporting sections 500 meters Extra courses 1,000 meters Grocery store 50 meters Средние значения в зависимости от удаленности Pharmacy 200 meters Restaurants, café 500 meters Tailor 500 meters Security Number of crimes per 10000 people number Number of accidents with casualties number Количество несчастных случаев number Presence of unified call center да/нет Жалобы, заявки, предложения от жителей 6 Resources 0.15 Availablity of drinking water resources (share) % Availablity of technical water resources (share) % Forecast of drinking water resources availability % Forecast of technical water resources availability % Green area people per sq.m. 7 Ecology 0.15 Air pollution index particles Share of processed solid waste % Existence of utilization facilities of solid waste Number 1
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Mono and small towns Mono and small towns Indicators Description Weight Value Calculation Condition 1 Spatial 0.2 Number of active SMEs per 1000 square meters Economic density Number of economically active population by area of total square meters Demograhic density Population density, people/sq.m. Proximity to other settlements, average time on a road within radius of 2 hours Number of people living in neighbour settlements Net internal migration Number of people 2 Economic 0.15 Gross Product (GP) Dynamic changes in last 10 years, % Structure of GP Growth of service sector, % gain Labor productivity Dynamic changes, CAGR for last 5 years, % Number of active SMEs Dynamic changes, CAGR for last 5 years, % Ratio of active SMEs to registered Dynamic changes, year by year (5 years), % Number of women owners Share,% Investment in fixed capital Dynamic changes, CAGR for last 3 years, % Self-sufficiency Share of state budget subvensions, % Dependencу on large taxpayer(s) Index of Herfindahl-Hirschman Minimum subsistence level in tenge 3 Infrastructure 0.15 Number of routes (within the region and interregional) Transport (railroad) Average hours on s road Roads density, sq.meters transport (road) paved roads share, % Share of roads with lightning system, % Central water system coverage % Deterioration rate, in % State of utility system (water supply, canalization) Share of infrastructure that need repair Deterioration rate, in % State of heat provision infrastructure Share of infrastructure that need repair Yes/No Waste water treatment facility Share of coverage Social infrastructure (healthcare) Number of doctors and medical workers Social infrastructure (education) Share of children age 1-6 who do not attend pre-school facilities 4 Socio demographic 0.2 Natural population increase % Life expentancy at birth years Share of youth in total population % Share of social aid recipients % 5 Comfort living standards 0.05 Housing availability sq.m. per one person Squares/boulevard/gardens for recreation of residents Availability of green space for each resident within a radius of 300 (green spaces) meters Social infrastructure Walking distance 500 meters Walking distance of school 1,000 meters Clinics 1,000 meters Center for state services 2,000 meters Commercial infrastructure Sporting sections 500 meters Extra courses 1,000 meters Grocery store 50 meters Pharmacy 200 meters Restaurants, café 500 meters Tailor 500 meters Security Number of crimes per 10000 people number Number of accidents with casualties number Количество несчастных случаев number Presence of unified call center да/нет 6 Resources 0.15 Availablity of drinking water resources (share) % Availablity of technical water resources (share) % Forecast of drinking water resources availability % Forecast of technical water resources availability % Green area people per sq.m. 7 Ecology 0.1 Air pollution index particles Share of processed solid waste % Existence of utilization facilities of solid waste Number 1
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Rural settlements (border settlements) Rural settlements Calculatio Weight Value Condition Indicators Description n 1 Spatial 0.2 Number of active SMEs per 1000 square meters Economic density Number of economically active population by area of total square meters Demograhic density Population density, people/sq.m. Proximity to other settlements, Number of people living in neighbour average time on a road within settlements Net internal migration Number of people 2 Economic 0.15 Gross Product (GP) Dynamic changes in last 10 years, % Structure of GP Growth of service sector, % gain Labor productivity Dynamic changes, CAGR for last 5 years, % Number of active SMEs Dynamic changes, CAGR for last 5 years, % Ratio of active SMEs to registered Dynamic changes, year by year (5 years), % Investment in fixed capital Dynamic changes, CAGR for last 3 years, % Self-sufficiency Share of state budget subvensions, % Dependencу on large taxpayer(s) Index of Herfindahl-Hirschman Minimum subsistence level in tenge 3 Infrastructure 0.1 Number of routes (within the region and Transport (railroad) interregional) Average hours on s road Roads density, sq.meters transport (road) paved roads share, % Share of roads with lightning system, % Central water system coverage % State of utility system (water Deterioration rate, in % supply, canalization) Share of infrastructure that need repair Social infrastructure (healthcare) Number of doctors and medical workers Share of children age 1-6 who do not attend Social infrastructure (education) pre-school facilities 4 Socio demographic 0.1 Natural population increase % Life expentancy at birth years Share of youth in total population % Share of social aid recipients % 5 Comfort living standards 0.15 Housing availability sq.m. per one person Paved roads yes/no Fire department yes/no Post office yes/no Gas station yes/no Access to internet coverage/1000 people Branches of STBs /cash-payments desks number Grocery shopes number 6 Resources 0.2 Availablity of drinking water resources% (share) Availablity of technical water resources% (share) Forecast of drinking water resources% availability Forecast of technical water resources% availability Green area people per sq.m. 7 Ecology 0.1 Existence of utilization facilities of solid waste Number 1
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Appendix 3
COMMUNICATION AND DIGITALIZATION OF THE AKIMAT
A. «One Window» Approach
1. The provision of public services has partially moved to the online sphere. However, the quality of services is inferior. Also there is lack of information about terms, standards, timing, and regulation of approvals.
2. On the basis of the Akimat’s website, two online portals should be established—one dedicated to local peoples’ services and the other based on the operating investment portal for corporate services. All departments of the Akimat (and later, regional state authorities) will link their digital services to these sites. Under this model, individual accounts are created for citizens and companies so they can track their various online interactions with the local government in one place.
3. Later, all public services should be channeled to one web portal to be utilized by both individuals and businesses. Existing datasets about the Kostanay region should be put online and objectives should be established for structuring and organizing digitized processes for the provision of public services.
Figure A3.1: General Description of Akimat’s Online Interaction System
Submit Receive aprroval/ User log-on Select service Complete form > > > request > decision
1
Public services 1 3 1 3
4
2 Identification and System Selection Central State body Transmit authorization process Database (unit) approval/results 2
2 3 Common IT platforms Decentralized IT
Real Estate Economic Municipal Private Land spots Infrastructure Individuals Data stats property entities
1. Heat supply 1. Profile 1. Profile 2.Water supply 2 History of all 2 History of all 3.Electricity requests requests 4. Sewage system 3. Tasks 3. Tasks 5.Telecom execution. execution. Inner Akimat system
Solutions, Decisions, Coordination Functional Integration subsystems Monitoring, Tasks, notification, requests, Akimat’s etc. Project orders departments/ coordination units unit
Feedback at Feedback at Papers exchange Call center E-mail Social networks Akimat’s Portal Investment Portal office
Interaction channels with Akimat’s target segments CRM system
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4. Three applications are of particular importance: (i) electronic identity management, (ii) easy access to digital services for private entities and individuals, and (iii) smooth exchange of data among the Akimat’s departments and municipal economic entities. Given the goals of openness and transparency and mass use by the local population, there is a need to develop a comprehensive system that is both secure and user friendly.
5. The Akimat should establish a special project coordination unit, which will have a mandate for mapping all data owned by the Akimat’s departments and municipal economic entities to provide data for further disclosure on local state websites, as well to provide information on request by individuals and companies. By providing access to personal information, the Akimat can stimulate private entities and individuals to provide qualitative information for internal analysis, conduct polls and surveys, and enhance public services.
6. By using data-exchange infrastructure and creating special protocols for interaction with different users, the Akimat can unlock massive productivity gains. For example, the Akimat can use the infrastructure to conduct surveys or obtain feedback on decisions on regional infrastructure, economic development, or municipal policies. Discussions can be structured and conclusions shared as much as possible among different actors, including citizens, businesses, public authorities, and other organizations.
7. In order to simplify coordination with local communities, all of the paperwork and bureaucracy of the Akimat will meet all four principles set out in the National Program «Digital Kazakhstan»: a. Involvement of citizens in the process of state decision-making b. Easy access to public and social services c. Transparent management mechanisms d. Open data for people
B. Incubate Pilot Projects and Build Critical Skills
8. After the new versions of web portals are in place and being used, user-centered and collaborative approaches can be introduced. For example, under the Triple Helix concept, the Akimat can organize open events around innovation and discovery sessions. Based on the data that will become publicly available, local software developers and coders can use it to propose some projects that will enable the regional authorities to solve problems with certain neighborhoods or the entire region, create flexibility in local labor market, increase social interactions in the region, promote regional competitiveness, and so on.
9. The Akimat should support development of “lighthouse” case studies, thereby strengthening internal capabilities in the process. The skills and initiatives of the local workforce will become the competitive advantage of the Kostanay region.
C. Investment Portal
10. The currently operating Investment Portal needs to be upgraded. It needs constant updating of data, an interaction/feedback system with investors and business owners, and mapping of all infrastructure and commercial objects located in the Kostanay region. This portal will provide an opportunity to communicate not only with existing investors, but also to promote the region among potential investors. It should be supported by a Customer Relationship Management system that also needs to be developed.
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11. The Akimat can decide to use the website to expand opportunities for private investments into the spheres financed and supported by the state budget. One part of the website should be devoted to that particular purpose. Whether it would be promoted as a public–private partnership (PPP) or a special investment contract does not matter; however, special terms and cooperation formats should be described.
12. The Akimat should make an audit of all municipal property, assessing the technical conditions of buildings and constructions and the availability of utility connections, with subsequent analysis of viable projects for investors. For successful execution of this initiative, a plan of implementation measures and related PPP projects should be prepared.
Figure A3.2: Proposed Contents of Investment Portal
13. There is a need for a Customer Relationship Management system to make the Investment Portal successful. It will combine all of the Akimat’s databases and provide a useful feedback mechanism for investors. The website will thereby become vibrant and better capable of bringing investors to the Kostanay region.
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Figure A3.3: CRM System for Investment Portal of Kostanay Region
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Appendix 4
INTRODUCTION OF TRIPLE HELIX MECHANISM FOR INVIGORATION OF START- UP ACTIVITIES IN THE KOSTANAY REGION "The business enterprise has two — and only two — basic functions: marketing and innovation", Peter Drucker.
A. The Concept
1. The term “Triple Helix” partnership has been used where government, the private sector, and research institutions have worked together. The use of Triple Helix partnerships to promote regional economic development is now well recognized in both the developed and developing world.
Figure A4.1: Triple Helix Model
Private Akimat entities
University
2. The development of the theoretical framework for a Triple Helix regional center comesfrom an innovative model of the relationship among government, academia, and business. The Triple Helix model was introduced and popularized by professor Henry Etzkowitz (Stanford University) and professor Loet Leydesdorff (University of Amsterdam) in 1995.
3. The concept of open innovation systems have a long history. Initially, there was a model of closed innovations within separate organizations (Shumpeter, 1934). Later, a model of final users (von Hippel, 1985) and strategic innovators (Chamel and Prahald, 1994) was developed. Finally, the concept of open innovation with the massive participation of outsourcing entities and the development of global value chains came into existence. Currently, due to individual customization policies employed by innovative organizations, innovations have become interactive and involved different elements of society. The concept of collaborative innovation networks has evolved, in which ecosystems may form on different levels of collaboration among various groups and organizations with a shared vision for perspectives of the future. These ecosystems may have territorial, political, industrial, or scientific linkages, anywhere where viable networks of active members coordinate their shared vision of innovative development. The creation of knowledge, the technological enhancement of participants, and the commercialization of innovation are three pillars on which collaboration among members of the network grow.
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4. Starting in the 2000s, regional innovation clusters such as Silicon Valley became increasingly important in economic development. Literature on cluster development, including the scientific description offered by Michael Porter, describe regional innovation clusters not only as territorially localized agglomerations of entities and their satellite organizations, but also as complex dynamic formations in which unique effects are reached with continuous growth of productivity based on constant innovation development. In the last 25 years, educational institutions have increased their influence on economic growth processes. Previously, this influence was found exclusively in the entrepreneurial and industrial spheres. Universities succeeded in creating an atmosphere where intellectuals engaged in teaching and research activities linked those activities to practical concerns of everyday life and society and became key actors in economic development and industry.
5. The Triple Helix model stems from the concept of continuous, permanent collaboration among academia, commercial entities, and public authorities. Through interaction, all three participants evolve and contribute to the economic development of a region.
6. As a result of the continuous interaction between local state bodies, scientific and educational institutions, and business, the system accumulates new knowledge which can be used by the members of the system, as well as by local communities. Sustainability and cohesiveness of the system are created. Today, institutional incentives for economic growth such as the ones created by the Triple Helix model are responsible for massive inflows of money into the economy provided by private entities.
7. The Triple Helix configuration has overlapping institutional fields: local authority, educational institution, and private sector entities (industry). By interacting with each other, each element eventually takes the role of another element and ultimately hybrid roles for each institutional field are created. Triple Helix systems accommodate both institutional and individual roles in innovation by each institutional element. The permeability of the boundaries among the institutional spheres is an important source of organizational creativity, encouraging individuals to move within and between the spheres and engage in activities that provide them with the opportunity to bring innovative ideas into reality. The Triple Helix is most relevant at the regional level, where local resources can be combined in order to realize objectives held by all three members of the system. In order to strengthen the collaboration among Triple Helix actors and enhance regional development, government policymakers, university officials, and business leaders have to establish a sustainable system in which their roles, functional boundaries, and organizational responsibilities are well formulated and organized.
8. One example of the permeability of functions is a university that takes on the traditional industry role of transferring technology and forming new entities, providing its facilities, scientific research, and knowledge, as well as its business and financial ties, to entrepreneurial ventures that develop a simple idea into a start-up. Private entities, in return, may take on the traditional role of the university by conducting training and research on its premises.
9. In the Triple Helix, local factors, such as a strong knowledge base, skilled labor services, and proximity to sources of knowledge and expertise, are much more important than cost reductions, especially for high tech firms. Innovative start-ups and smaller firms, having fewer resources than larger firms, are more dependent on the resources of their local environments. Therefore, creating the infrastructure for local knowledge creation and knowledge-based firm formation and growth is the essence of a local regional start-up development strategy.
10. Three roles are important for sustainable development of the Triple Helix:
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a. the key role of universities as the main producers of knowledge; b. the strategic role of enterprises in producing innovation through the improvement of organizational processes and the promotion of products and services that develop in the system; and c. the critical role of the local state body in maintaining the necessary conditions to support innovation, in particular those conditions favoring the concentration in the region of a critical mass of tangible (e.g., testing facilities, applied research laboratories, and scientific and technological infrastructure) and intangible assets (e.g., a culture of innovation and entrepreneurship, a willingness to open the local society to external relations, the development and support of talent, and continuous interaction among different stakeholders). B. Problem Statement
11. Currently, economic development is characterized by state domination of the economy. Cooperation among universities, government bodies, and the private sector is almost non- existent. State policy has constrained innovative activities by private entities and reduced demand for innovation. In this environment, there is no opportunity for close cooperation between academic institutions and private entities. The quasi assistance provided by state institutions such as the National Agency for Technological Development (NATD) has not been successful. The current highly centralized system gives regional authorities no power to influence the distribution of “money for innovation” from NATD.
12. In the absence of cooperation among universities, government bodies, and the private sector, the deficit of information and knowledge exchange among various economic agents in the market creates higher risks for business. This, in turn, affects the credit policy of commercial banks, which provide only expensive money to private entities. In the absence of cheap, long- term money, free economic agents shorten their investment-planning period and lose interest in introducing innovation or improving productivity levels. At the same time, more and more state- dependent entities flourish. Diminished investment activity by private companies reduces the ability of the economy to grow and diversify.
13. In order to promote organic economic growth, local authorities should work on the development of a horizontal, non-hierarchical interaction model like the one in the Triple Helix system. Although Kostanay region has a large number of people who are innovative and entrepreneurial, the existing environment and institutions has a negative influence on the proportion of individuals who actually choose to pursue entrepreneurship. Without a conducive environment in place, it is very hard to direct peoples’ life paths towards entrepreneurship.
14. In addition to a conducive business environment, private entities and entrepreneurs need: a. localized spreading and absorption of knowledge; b. policy support in tapping into the necessary outside (financial, human, information, etc.) resources; c. tailored counseling, technology, or qualified human capital to enable them to deal with the new forms of competition that are developing in the global economy; d. collaborative networks, which can aggregate pools of complementary resources and competencies; e. mechanisms and processes for the validation of business opportunities originated by an entity or by an individual/researcher; and f. consolidated processes that allow customers, end-users, and citizens to be involved in the process of developing new products and services.
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15. The political will of local authorities in Kostanay region can be an important factor in boosting innovation. The region has a marked rural character which requires innovation in products and processes to take advantage of its natural endowments. The regional economy relies heavily on the primary sector and the industrialization level is very low. Kostanay region is one of the leading regions in the country in terms of the quality of agricultural products. It is also located near Russian regions that have large consumer markets.
16. The current challenges affecting regional innovation performance are (i) limited investment in research and development by the private sector, (ii) weak demand and low interest of local entities for innovation, (iii) limited use of created knowledge, and (iv) lack of co-operation among key players in the innovation system.
C. Triple Helix in the Kostanay Region
17. In the Kostanay region, there are two tiers of potential participants in a Triple Helix.
18. The first tier consists of the Akimat (Department of entrepreneurship and industrial- innovative development), a university (Kostanay Engineering and Economic University), and private entities (including primary agriculture, wheat processing and flour production, services to agricultural companies, and software developers).
19. The second tier consists of Damu Fund, the Regional Chamber of Entrepreneurs “Atameken”, SEC “Tobol”, individual mentors, business angels, and venture capital funds.
20. The Triple Helix in Kostanay region might have a focus on: a. know-how in agricultural production; b. services for the agriculture sector and food processing; and c. services to regional, municipal, and community organizations
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Table A4.1: Triple Helix Participants Participant Interested in Roles and Functions Input Expected Outcome Expected Output Akimat Diversification of the Serving as Promotion of activities Kostanay region as an Forward thinking state economy acquirer/purchaser of and start-ups innovative hub in body with the ability to developed innovation northern Kazakhstan adopt and implement Innovative and start- Grant financing (under policies that help up activities Promoting innovation Business Road Map Increase in the number diversify the regional and entrepreneurship program) of new business economy, develop the Establishment of new culture entities skills and knowledge of entities Access to external the work force, and Providing technical players Large private university increase investment Promotion of the services (in partnership both as educational flows into the region region in external with Damu Fund) on and as research center markets management, marketing, finance, and Attraction and legal issues retention of foreign and local investors Developing selection criteria, such as Addressing social impacts on economic issues growth and (unemployment) employment, while supporting the development of novel ideas
Helping access to support for start- ups/spin-offs on research, professional networking, international relations, and investor attraction
Accelerating approval for start-ups and spin- off, both on the regional (access to land, infrastructure, construction) and
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Participant Interested in Roles and Functions Input Expected Outcome Expected Output national levels (licensing, patent, state financial and non- financial support)
Organizing Regional Committee meetings to approve grants for promising projects
Bringing international and innovative networks of researchers/innovation developers
Providing data and information on regional factors, conditions, and problems that can be used by entrepreneurs and researchers for innovative ideas/projects
Attracting innovative high-tech firms to relocate to the region University Increase in the Providing incubation Facilities Environment which Strong university number of students facilities for start-ups generates and where education and Faculty provides continuous research is relevant Increase in the Providing shared research services, and driven by the percentages of infrastructure for Knowledge knowledge, and market employed students researchers, business innovation exchange and students who entities, students, and Information launch successful other groups businesses Organization of events Organizing and hosting events (hackathons,
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Participant Interested in Roles and Functions Input Expected Outcome Expected Output Flexible system for start-up weekends, identifying the skills visits by special needs of employers guests, business plan in advance, which contests, forums, etc.) enables new skills/qualifications to Bringing together be introduced easily faculty, researchers, students, and people Professionally with innovative ideas oriented career with focused education Attracting and retaining and research the best talent, researchers, faculty, Establishment of mentors, etc. endowment or investment fund Enhancing research productivity
Bringing international and innovative networks of researchers/innovation developers
Producing knowledge relevant to start-ups and innovation activities
Creating an underlying science base, as a mechanism to jumpstart the formation of knowledge-based firms and creative industries
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Participant Interested in Roles and Functions Input Expected Outcome Expected Output Private Technology transfer Acquiring or Fields and production Environment which Innovative cluster of entities and innovation purchasing developed premises for testing of generates and individual competitive innovation pilot products, provides continuous entities Continuing education prototypes, beta- research services, of management and Involving increasingly versions of software knowledge, and employees open business models, innovation exchange a greater focus on Financing for Access to understanding latent development of certain information, consumer needs, and technology knowledge, global more direct development and trends, etc. involvement of users in acquisition of patents various stages of the Applied research innovation process consultancy, knowledge and Providing facilities and technology transfer areas of actual operations for Cost reduction for LivingLab activities research and (testing and development and prototyping of products testing and services)
Increased Establishing productivity and technology transfer competitiveness offices
Participating in the systematic collection of information about final user needs and user experiences through LivingLab
Identifying specific problems for which businesses seek solutions and providing related data and information)
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Participant Interested in Roles and Functions Input Expected Outcome Expected Output
Participating in the development phase of commercial products and services Source: ADB consultants.
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21. When the true collaboration among all three Triple Helix members starts, there will be a need for establishing three organizational units: a. for activities in primary agriculture and food processing: a Center of Tech Competencies in the Sphere of Agribusiness and Food Processing; b. for activities in services in the development of the regional and municipal infrastructure and services: a Center for Municipal and Regional Development; and c. for innovation and testing of new technologies, products, and services: a LivingLab for Field Trial and Prototyping. 22. The first two units do not have to be officially established departments or divisions of the Akimat or the University. Rather, they may be informal units under which activities related to certain areas of knowledge would take place. The last unit, the LivingLab, does not have to be limited to one place or area, but may be scattered among different entities around Kostanay region.
23. LivingLab is an open, real life environment, in which products and services are tested in real conditions. Depending on the type of product or service, the testing could involve marketing or production. In theory, after the product or service is tested in the LivingLab, it will be easier for the innovator to obtain venture capital funding or other forms of financing.
24. LivingLab should include all of the following processes: (i) living lab tools for carrying out tests; (ii) evaluation of usability, (iii) mapping user needs, (iv) evaluation of scenarios, (v) testing of prototypes, (vi) evaluation of product and service concepts, (vi) product development, and (vii) any other service which assists in identifying market potential. Figure A4.2: Process of Developing a Product/Service/Software and the Role of LivingLab in the Process
1.City’s/Region’s problems 2.Entities’ issues 3. Data on the region 4. Innovative ideas by students, scholars, citizens
Stage Use of a LivingLab
Problem Identification of a statement/Idea customer base/ More extensive generation User experience development and Product/service/ field software build-up experimentation Stakeholders involvement/ Research team Yes building Limited user interaction and Field trials focus-groups preparation, initiation and pilot Data mining, Vision workshops benchmarking on existing solutions, No scenarios, Experimentation Yes Training and definition of and validation with demonstration of product/services, users capabilities Technologies and initial discussions First version of a application Pivot/ New and distribution of product/service work among team selection concept No members Field trials extended, Patenting/ Limited proof of finalization of a Licensing principle product/service/ software
Commercialization
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25. The functions of Triple Helix systems are defined as a set of processes specific to the three Triple Helix spaces: Knowledge, Innovation, and Consensus.
a. Knowledge Space
26. The idea of the Knowledge Space is the development of resources aimed at generating and reinforcing knowledge production and its further diffusion.
27. All types of knowledge coming from academic research, educational and individual scholar enquiries, companies’ research and development divisions, and public research organizations and laboratories will be accumulated, stored, and diffused. This will expand the knowledge base of the hosting academic institution. Entrepreneurial discoveries by groups (start-up and incubation), together with academic research groups and outside research centers, are of special interest for the Triple Helix model.
b. Innovation Space
28. Entrepreneurial individuals (as well as private enterprises) and institutions working in a common interface (i.e., technology transfer offices, science laboratories, business incubators, start-up accelerators) create the Innovation Space.
29. The mission of the Innovation Space is to create a critical mass of knowledge resources to strengthen the local, regional, and national knowledge base, avoid fragmentation, and reduce duplication of research efforts.
30. The Innovation Space’s primary tasks are: (i) attracting talent and innovative firms from everywhere, (ii) building an integrated environment for university technology transfer and entrepreneurship activities, (iii) providing entrepreneurial training programs, start-up events, and business plan competitions, and (iv) creating an incubator facility for new firms.
c. Consensus Space
31. The Consensus Space is a set of activities that bring together the Triple Helix system elements to brainstorm, dialogue, and evaluate proposals, ideas, and projects.
32. The Consensus Space needs collaborative governance measures and rules and regulations that will assign roles and functions to each unit and part of the system so that there is smooth promotion of research and innovation programs and policies and the involvement of actors from other spheres in the interactive process. In addition, it has to promote an innovation culture and boost continuous communication with the actors in the other spaces. In the Consensus Space, private entities, educational institutions, and local government start to see themselves as parts of a larger group with common goals rather than individual goals.
33. All three spheres, when established and put into operation function as selection environments for projects, ideas, people, products, services, innovation, etc. Whereby, the system ensures its own sustainability and prospect for development and regeneration.
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Figure A4.3: Institutional Framework
Damu Fund
In House R&D, Open Innovation Private Platforms, Akimat LivingLab: Enterprises Pilots and Prototyping CONSENSUS SPACE (flows of information, ideas, projects, development issues)
INNOVATION SPACE SEC “Tobol” (novelty production)
Meeting, Regional Chamber of Discussions, Entrepreneurs Events, Promotion activities Business associations and cluster centers
University
KNOWLEDGE SPACE (knowledge generation, science & technology, information, discoveries, external resources)
Research, Education, Faculty, Partner academic institutions, Scholars
34. There are currently almost no innovation activities in Kostanay and no conducive environment for their development. However, there is a strong will in the Akimat, its divisions, among entrepreneurs and owners of SMEs, at the Kostanay Engineering and Economic University (KEEU), its faculty and students, and individuals who are enthusiastic about participating in real life innovation activities. KEEU is the private academic institution that has tried to launch a start-up academy and has supported innovative activities among its students and faculty. It has strong base of scholars and alumni network. However, this is not enough given the environment and the absolute indifference of the private sector in developing innovation, either using KEEU’s resources or doing in-house research and development using the knowledge base of KEEU.
35. As a first step, the Akimat together with KEEU may establish the Center of Tech Competencies in the Sphere of Agribusiness and Food Processing (CTC). CTC, in turn, will engage the resources of KEEU’s career development center, concentrate on searching for and adapting existing innovation, develop the infrastructure for innovation within KEEU’s premises, and prepare on-demand research and training for partnering private entities (mainly employers of KEEU’s graduates). The work of CTC will precede further actions to create a start-up laboratory and LivingLab activities with private entities. KEEU should assess its resources (human, financial, and organizational) and propose its vision for the establishment of CTC to the Akimat.
36. The Akimat may participate by providing available government facilities or partial financial support through SEC “Tobol” on the basis of a public–private partnership. The Akimat can also gather data to create an Open Data resource base on all spheres of the Akimat’s activities in the region for innovation and software developers.
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37. CTC will serve as an open platform for networking and exchange of ideas, knowledge, and experiences in the priority sectors of agribusiness and food processing. The Center for Municipal and Regional Development will have the same functions as CTC but for research and solutions for city and regional development. The Akimat should consider KEEU not just as a private educational institution, but rather as an intermediary organization that bridges the gap between business/society and education. The role of that intermediary is critical for the further economic development of the Kostanay region.
38. CTC will become a focal point for collaboration among Triple Helix stakeholders as well as for cooperation programs with leading technology enterprises and academic institutions.
39. KEEU will start to actively approach SMEs and invite them to weekly one-hour sessions where businesses may raise a problem or question, such as issues regarding the availability of human capital with particular expertise. The problem or question will be discussed with the experts of KEEU and the Akimat. After a few sessions, it will be clear if there is scope for some collaboration; and if yes, what level of partnership those entities are willing to accept (e.g., LivingLab activities, employment of KEEU’s students, internships, curricula adaptation, additional training, innovation projects, other activities). The new platform will develop out of the weekly sessions. On that platform, the Triple Helix partners will meet, discuss common challenges, and develop joint activities and projects. Different academic and entrepreneurial methods and degrees of involvement can be distinguished, including a direct interest in the formation of a spin-off firm and in taking a leading role in this process, or handing over the results of research and development or any other solutions to CTC for further disposition among entrepreneurs and other researchers for commercialization.
40. Other actions for launching the Triple Helix may include: a. At the preliminary stage, the Akimat should carry out: i. assessment of KEEU’s start-up academy’s stage of development, challenges, and opportunities, and the good practices, models, types of innovations produced, and the roles, skills, and activities supported and what is needed from public authorities to support innovation; ii. together with the necessary stakeholders, a local–regional learning process that distinguishes between short-term and long-term opportunity perspectives (what it means for various groups; what are its goals; and what kind of innovations are pursued); iii. identification of additional community members (from academic institutions, public administration, industry, and consultants) who are willing to assist in building the Triple Helix model; iv. ways to channel and accelerate the process of patent/licensing for start- ups and spin-offs incubated within the Triple Helix; v. identification of a LivingLab performance model with all the participating groups of entrepreneurs and entities that support the idea.
b. Setting up of an IT collaborative platform to support coordination within and development of the Triple Helix system.
c. Establishing the roles and responsibilities of all Triple Helix stakeholders.
d. Drawing up a clear schedule and division of labor for the different stages of development and tasks associated with the development of the Triple Helix system.
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Appendix 4 e. Developing and signing a memorandum of understanding among the members of the Triple Helix system. f. Developing an internal regimen and regulation for: i. accurately describing the roles and responsibilities of the Triple Helix partners; ii. documenting, reporting, and evaluating projects and activities in the system; iii. identifying and discussing conflicts of interest; iv. describing proper methods for working on the different development phases of the innovation development process; and v. establishing state-of-the-art agreements suitable for formalizing cooperation between a founder and groups of developers, researchers, private entities, investors, etc. for the development of a product, service, or software. g. Organizing promotional events such as hackathons, start-up weekends, visits of prominent start-up gurus, and contest events among start-up projects. h. Developing short-term training programs for representatives of SMEs, students, faculty members, and others on product development, Triple Helix procedures and regulations, and modes of collaboration. i. Developing a communication strategy to strengthen the brand and visibility of the Triple Helix environment. This document should include:
i. business plan competitions, innovation awards, entrepreneurship education; ii. a list of the benefits that private entities and outside research groups that participate in the system can receive; iii. ways of promoting start-ups and spin-offs to increase the number of new firms; and iv. methods of promoting and obtaining approval of patent applications and commercializing innovative products, services, and software. j. Redesigning the tasks and functional areas of the Regional Committee so it can take on the role of Regional Innovation Council (or, alternatively, establishing a different group with the function of approving grant financing). k. Preparing the documents necessary to establish a Technopark on KEEU’s premises with special status and incentives (fiscal, non-financial, infrastructure, etc.) and develop a public–private partnership project with private investment.
Information Sources for Innovative Ideas l. Create an Open Source of statistical data possessed by different state bodies of Kostanay region: i. Types of economic activities represented in the region; ii. Qualitative data on soil conditions, vegetation and harvesting periods, levels of humidity – on district level; iii. Information on electricity lines, water and heat supply and sewage systems of the region, other types of infrastructure; and iv. Other useful datasets for innovators to find solutions to problems.
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Appendix 4 m. Akimat’s departments state problems and provide corresponding data (to seek innovative solutions for pertinent problems); n. Private entities pose issues they face in the fields of operations, marketing, accounting, etc.; o. University researchers talk directly to SMEs in the region and identify hidden problems; p. Hold regular round tables with entrepreneurs from various economic sectors where they can discuss a problem or question with a team of university experts; q. Collect research questions and challenges from a variety of organizations (entities, hospitals, state authorities, RCC, etc.).
Figure A4.4: Thematic Directions for Innovative Ideas in the Field of Municipal or Regional Development Trends in the region or city development lay on finding solutions for existing problems Innovative ideas may come for solving the following tasks
Re-programming of cities’ info/communicative spheres
«Smart» engineering infrastructure
Ecological infrastructure building Added on mobility
Co-generation, co-heating, co-cooling Shared utilization of excessive resources
Mobility on demand Regional infrastructure for social bonding
«Smart» streets
City/Local farming
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Appendix 5
Appendix 5 The list of temporary state support measures to sustain SMEs and entrepreneurs in the period of COVID-19 state of emergency
Tax preferences 1. Property tax exemption till the end of 2020 for major trading facilities (markets, bazars), shopping and entertainment centers, cinema centers, theatres, exhibitions, catering, hotel and touristic facilities. 2. Individual income tax exemption before the end of 2020 for individual entrepreneurs working in general taxation mode. 3. Exemption of SMEs for 6 months until October 1, 2020 from taxes and social payments from entities’ salary fund (tourism activities, catering, hotel business, large trading facilities, shopping and entertainments centers, cinema centers, theatres, exhibitions, catering, hotel and touristic facilities, sports and recreation facilities, trade (excluding sale of food and pharmacies), transportation services, consulting and information technology sectors. 4. Payment of all types of taxes exemption (tax holidays), mandatory budgetary payments and social payments (contributions in the form of individual income tax, social tax, social and health insurance payments)
Payments on credit loans (mandatory for all types of financial organizations, including commercial banks and micro financial organizations) 1. Exclude all fines and penalties on payments’ arrears on the main debt and remuneration part. 2. Grant a delay on payments for a period of up to 90 calendar days to SMEs whose financial condition has deteriorated as a result of the introduction of state of emergency.
Preferential crediting conditions of SMEs 1. Lending program for SMEs in the total amount of 600 billion tenge. The loans will be issued for working capital replenishment at the rate of 8% for a period of up to 1 year. 2. All industry limitations have been canceled. 3. Under the BRM: - increase limit of a loan amount per one entrepreneur from 2.5 billion tenge up to 7 billion tenge; - working capital replenishment limit increase from 60 to 500 million tenge (except for trade companies, for whom the maximum amount is 100 million tenge); - increase of guarantee for a loan of 1 billion tenge with 50% credit guarantee, for a loan of 350 million tenge with 85% credit guarantee.
Under the Economy of simple things program 1. Out of 1 trillion tenge, 70% (700 billion tenge) is provided to agricultural sector with specialization on food processing and production of agriculture primary products, 30% (300 billion tenge) is being provided to manufacturing and services sectors.
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Appendix 5
Direct support of Agriculture industry 1. Value Added Tax (VAT) exemption of entities that import biological species, including cattle and pedigree chicken. 2. Land tax exemption of producers for possessed agricultural lands. 3. Decrease of VAT for socially significant products from 12% to 8% up until 1 October, 2020. 4. Financial support (lending) through ACC in the total amount of 70 billion tenge at the rate of 5% for spring field works. 5. Fixed price for diesel for agricultural entities at 15% of market price (currently 165 tenge per 1 liter). 6. Mechanism of advanced procurement of up to 6 months supplies from local food processing and production entities.
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Appendix 6
Appendix 6 Causal loop diagram with factors affecting SME and entrepreneurship development
Markets Purchasing power Credit financing + + Supply + + Demand
Households’ Market income competition Consumer loans,+ Debt burden + Consumerism Consumption Bankruptcy + R Product/Services Necessity STBs Motivation quality Social (civic) _ activism Inclusivity Stagnation Entrepreneurs/ non- Business Capital outflow Employment resource business Development + activity institutions Cultural norms/ + practices Internal locus of Institutional Job markeBt control Corruption, non- environment transparent + + behavior State sector (SOEs)
Investment Natural climate Competitiveness of a resources’ reserves Unemployme_nt territory Tax base Changes in Population net earnings & SME competitiveness expenses structure Social effects Resource _ (bonding/ companies bridging) Crisis Migration Tax system/ tax Control, Death/ Birth rates Quality/ administration + standard regulatory functions Stimulation of living Human capital incentives World economic situation Fiscal policy Fear of failure, responsibility External Healthcare system public debt Paternal behavior, dependence Work practices Trade Educational International balance/ program, Access to organizations Quality of Import- quality higher education Export education State management system Regional security Social State of Coordination/ expenditures/ infrastructure approval process programs Oil/ Stability Budgeting commodity process prices Inflation/ price Causal influence The System of state increase Example of a reinforcing loop planning (SSP) Balance of State budget payments/ expenses Example of countercyclical, balancing loop Economic policy Monetary policy Negative factors (example)
State programs
Gold and currency Positive factors Sovereign reserves Welfare fund Factors
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Appendix 7
Appendix 7 Action plan for SME and entrepreneurship development of the Akimat of Kostanay region, 2020-2025
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DISCLAIMER
The Roadmap and the Action plan of SME and entrepreneurship development in Kostanay region are pending approval of the Akimat of Kostanay region. The report contains the analysis and justification for initiatives and activities proposed to the Akimat of Kostanay region.
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