Munich Personal RePEc Archive The Machinery Industry In Kazakhstan: Economic Conditions and Policies Lord, Montague J. JICA, Japan International Cooperation Agency March 1998 Online at https://mpra.ub.uni-muenchen.de/41165/ MPRA Paper No. 41165, posted 09 Sep 2012 18:32 UTC THE MACHINERY INDUSTRY IN KAZAKHSTAN Economic Conditions and Policies Preliminary Draft Report Prepared by Montague J. Lord The Materials Process Technology Center Yachiyo Engineering Co., Ltd Presented to Japan International Cooperation Agency and The Ministry of Energy, Industry and Trade Republic of Kazakhstan March 1998 The Machinery Industry in Kazakhstan: Economic Conditions and Policies Preface This report represents the collaborative efforts of the national and international specialists in policy issues affecting the machinery industry in Kazakhstan. It provides background material on the economic conditions and policies affecting the machinery industry for the Master Plan Study for the Development of the Machinery Industry in the Republic of Kazakhstan. The Study Team benefited from contributions from many government officials and numerous individuals in the private sector, as well as the direction provided by the members of the Steering Committee, staff members of the Ministry of Energy, Industry and Trade and numerous other ministries and committees of the Government of the Republic of Kazakhstan, members of the Japan International Cooperation Agency and the Embassy of Japan. The present report was prepared under the direction of Mr. Teruhiko Wakabayashi, Team Leader. Ms. Nailya Kaliakbarovna Abdymoldaeva, Director of Policy and Legislation of the Ministry of Energy, Industry and Trade was the Government counterpart for the study. Ms. Abdymoldaeva’s contributions to the preparation of the trade-related material of this report and her coordination of work with other branches of the Government are gratefully acknowledged. The report also benefited from the excellent translation services provided by Ms. Galina Aleksandrovna Rezakova and other members of the local staff under the direction of Mr. Vasily Ilyich Beshun. The challenges of presenting a comprehensive analysis of the policies and regulatory issues affecting the machinery industry in Kazakhstan were met by the collaborative efforts of all of these individuals. Nevertheless, the information and recommendations contained herein are the responsibility of the author and do not necessarily reflect the views of the Japan International Cooperation Agency, the Ministry of Energy, Industry and Trade of the Government of Kazakhstan, or the parties interviewed during the course of the study. ii The Machinery Industry in Kazakhstan: Economic Conditions and Policies CONTENTS PREFACE ii CONTENTS iii TABLES vi FIGURES x BOXES xi ACRONYMS xii EXECUTIVE SUMMARY xiv PART I. BACKGROUND AND COVERAGE 1 1. INTRODUCTION 2 1.1 Terms of Reference 2 1.2 Objectives and Organization of the Report 3 PART II. OVERVIEW OF THE ECONOMY 11 2. THE PROCESS OF ECONOMIC TRANSITION 12 2.1 Structural Reforms and Liberalization Initiatives 12 2.2 Macroeconomic Policy Environment 17 2.2.1 Monetary Stabilization Policies 17 2.2.2 Fiscal Measures and Public Investment Policies 18 2.3 Development of Key Productive Sectors 18 3 REVIEW OF THE MACHINERY INDUSTRY 22 3.1 Agroindustrial and Mining Activities 22 3.1.1 The importance of Agriculture and Mining 22 3.1.2 Agricultural and Agroindustrial Performances 23 3.1.3 Mining and Mineral Processing Activities 28 3.2 The Machinery Industry 29 3.3 Transportation Characteristics 33 iii The Machinery Industry in Kazakhstan: Economic Conditions and Policies PART III. TRADE, INVESTMENT AND FINANCING 36 4 TRADE POLICIES AND PERFORMANCES 37 4.1 Current Trade Patterns in Machinery and Related Industries 37 4.2 Comparative Advantage of Machinery-Related Industries 44 4.3 Nominal Rates of Protection 46 4.4 CIS Trade and Customs Union Issues 49 4.5 Export Processing Zones and Special Economic Zones 50 5 THE INVESTMENT ENVIRONMENT 52 5.1 Investment Patterns and Policies 52 5.1.1 Investment Patterns 52 5.1.2 FDI Policies 59 5.1.3 Registration Procedures and Regulatory Issues 62 5.2 Tax Structure and Incentives 63 5.2.1 Tax Structure 63 5.2.2 Incentives for Foreign Direct Investment 65 5.3 Infrastructure and Costs Related to the Machinery Industry 65 5.3.1 Utility Costs 65 5.3.2 Wages 65 5.3.3 Transportation Costs 68 5.3.4 Other Investment Issues for the Machinery Industry 68 6 FINANCING CONDITIONS 70 6.1 Trade and Investment Financing 70 6.2 Banking Facilities and Regulations 70 6.3 Constraints on Private Enterprise Finance 70 6.4 Financing Constraints on the Machinery Industry 70 IV. PRIVATIZATION, REGULATIONS AND INSTITUTIONS 71 7 PRIVATIZATION POLICIES 72 7.1 Privatization Policies and Progress 72 7.2 Privatization-Related Institutions 76 7.3 Privatization Patterns in the Machinery Industry 77 8 THE INSTITUTIONAL FRAMEWORK 79 8.1 The Changing Government Structure 79 8.1.1 Overview of the Reform 79 8.1.2 The Ministry of Energy, Industry and Trade 79 8.2 Technical Schools and Vocational Institutes 79 8.2.1 Structure and Distribution of Activities 79 8.2.2 Funding Sources and Programs 79 8.3 Areas of Complementarity and Needs 79 iv The Machinery Industry in Kazakhstan: Economic Conditions and Policies 9 DONOR ASSISTANCE PROGRAMS 80 9.1 Donor Assistance Strategies 80 9.2 Donor Activities in Machinery-Related Industries 83 9.3 Areas of Complementarity and Coordination 91 V. CONCLUSIONS 93 10 SUMMARY AND RECOMMENDATIONS 94 10.1 Overview 94 10.2 Trade Policies 97 10.3 Investment Policies 97 10.4 Financing Requirements 97 10.5 Privatization Policies 97 10.6 Institutional Support Mechanisms 97 10.7 Coordination of Donor Activities 97 Annex: Meetings during the First Field Trip 98 Statistical Appendix 101 References 150 v The Machinery Industry in Kazakhstan: Economic Conditions and Policies TABLES Table 2.1 Comparative National and Regional Statistics for Key Socio-Economic Indicators, 1995 14 Table 2.2 Key Macroeconomic Indicators, 1994-97 16 Table 2.3 Major Products of Machinery Industry-Related Activities 18 Table 2.4 Contribution of Selected Industries to Total Industrial Production, 1990-96 19 Table 2.5 Kazakhstan’s Industrial Output Changes, 1995-97 20 Table 3.1 Value Added of Selected Activities, 1993-96 23 Table 3.2 Agricultural Production, 1993-96 24 Table 3.3 Yields of Selected Agricultural Crops, 1990-96 25 Table 3.4 Composition of Agricultural Processing Industries, 1994-96 26 Table 3.5 Production of Metallurgical Products, 1994-95 27 Table 3.6 Output Index of Selected Industries, 1990-96 28 Table 3.7 Output of Basic Machinery Products, 1990-96 30 Table 3.8 Production of Major Types of Machinery, 1994-95 31 Table 3.9 Freight Traffic by Transportation Mode, 1985-97 33 Table 3.10 Change in Transportation Costs for Freight, 1993-96 34 Table 3.11 General Purpose Rolling-Stock at End-1995 35 Table 4.1 Machinery Trade, 1997 (Quarters I-III) 38 Table 4.2 Export-Based Ranking of Major Machinery Products, 1997 (Quarters I-III) 39 vi The Machinery Industry in Kazakhstan: Economic Conditions and Policies Table 4.3 Import-Based Ranking of Major Machinery Products, 1997 (Quarters I-III) 41 Table 4.4 Kazakhstan's Main Traded Commodity Groups, 1996 43 Table 4.5 Revealed Comparative Advantage of Kazakstan's Exports 45 Table 4.6 Kazakhstan Non-Zero Import Duties on Machinery, 1997 47 Table 5.1 Fixed Capital Investment, 1995-97 53 Table 5.2 Inflow of Foreign Direct Investment, by Sector, 1993-97 55 Table 5.3 Foreign Direct Investment by Country of Origin, 1993-97 57 Table 5.4 Comparative Utilities and Transportation Services Costs of Kazakhstan 66 Table 5.5 Wages in Industry, Agriculture and All Sectors, 1995.1 - 1997.3 67 Table 5.6 Cost Structure Of Selected Industries, 1995-96 67 Table 7.1 Privatization of State Owned Enterprises, 1994-97 74 Table 7.2 Enterprise Debts and Arrears, mid-1996 to mid- 1997 75 Table 7.3 Case-by-Case Privatization of State-Owned Enterprises, 1995-97 76 Table 7.4 Mass Privatization by Industry Category, 1995-97 77 Table 9.1 ODA Projects Related to the Development of the Machinery Industry in Kazakhstan 85 Table 10.1 Macroeconomic and Structural Adjustment Policies for a Successful Machine Development Strategy 95 Appendix Table 1.1 Consolidated State Budget, 1993-96 103 Appendix Table 1.2 Balance of Payments, 1994-96 104 vii The Machinery Industry in Kazakhstan: Economic Conditions and Policies Appendix Table 1.3 Prices, Interest Rates and Exchange Rates, 1994-97 105 Appendix Table 1.4 Employment by Sector, 1990-96 106 Appendix Table 1.5 Privatized Enterprises by Sector, 1996-97 106 Appendix Table 1.6 Distribution of Enterprises by Sector, July 1997 107 Appendix Table 2.1 Total Land Area and Distribution of Agricultural Land by User, January, 1997 109 Appendix Table 2.2 Cultivation of Selected Products, 1996-97 110 Appendix Table 2.3 Capital Investment in Agriculture, 1990-96 110 Appendix Table 2.4 Output of Processed Agricultural Products, 1994-95 111 Appendix Table 3.1 Production of Non-Ferrous Metals, 1994-95 112 Appendix Table 3.2 Output of Selected Ferrous Metal Products, 1990-96 113 Appendix Table 3.3 Extraction of Selected Commercial Ores, 1990-96 113 Appendix Table 3.4 Production of Metallurgical Products, 1994-95 114 Appendix Table 4.1 Output of Major Industrial Products, 1996-97 115 Appendix Table 4.2 Output of Major Products of Forestry, Wood- working and Pulp and Paper Industries, 1990-96 116 Appendix Table 4.3 Production by Technology-Intensive Industries, 1990-96 116