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IMPACT OF REFORMS ON INDUSTRY

HISTORICAL BACKGROUND

The New Economic Policy (NEP) introduced in 1921 boosted the industrialization

process in Soviet Central Asia. In the initial phase of NEP, small-scale factories like

tanneries, food, textile goods etc. were encouraged. The GOELRO plan was

introduced in 1920, which enc~uraged electrification of industries in USSR. It aimed

primarily to develop heavy industries like iron and steel, non-ferrous metallurgy and

associated fuel industry, through electrification. It continued along with the Five-Year

Plans. However, the pace of industrialisation remained slow until the introduction of

the First Five-Year Plan in 1928.

The Soviet policy in the initial stages of the Five-Year Plans focussed on

developing productively effective industries. The Soviets encouraged effective

utilisation of local resources and so encouraged agro-based industries like cotton

textiles. The Second and Third Five Year Plans encouraged development of

non-ferrous metallurgy and chemical industry. The development took place in heavy

industries like electricity generation, chemical combine and copper- melting based on

electric power, construction of agricultural machine manufacturing units, textile

combine, etc.

During the Plan period, Central Asia witnessed a qualitative change in the

structure of industry. In addition to the traditional cotton textile industries, new

industrial enterprises were created. Each Republic specialised in one or few branches

of industry. The Soviet policy of industrialisation and collectivisation of agriculture in

Central Asia reduced substantially the gap in the level of development between the

central regions ofRussia and Central Asia.

The Soviets shifted its industrial base from the European parts of USSR to the

east and particularly to Central Asia after German invasion in 1941. Central Asia

however, received relatively less attention after the war because of Soviet Union's

preoccupation with post war reconstruction of its European part. Central Asia by

1950, however, managed to possess a powerful and modem industrial base. Industrial

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development diversified and the region acquired its own fuel, power and machine

building base.

During Khrushchev's time, emphasis was given on promoting large projects

and technological progress. As a result, there was increase in production in Karaganda

coalfield, non-ferrous metals, electric generation and chemical industries in Central

Asia. Heavy industries played a crucial role in the industrial growth of the 1960s,

1970s and in the first half of 1980s. Other industries like electronics, radio

engineering and computing machines for au~omation of industrial production and

improvement of quality of engineering products were also established during this

period.

Nevertheless, an important negative development at this time was the sectoral

imbalance in labour use. The light and food industries employed excess labour and the

large-scale industries suffered from labour shortages.

MINERAL RESOURCES OF KAZAKHSTAN

Rich mineral resources are Kazakhstan's asset, also vital for its economic

development. Natural resources are its major industrial base. Reform in this sector

was necessary to improve its industrial base. Natural resources protect Kazakhstan

from depending on foreign mines and facilitate to produce raw mineral resources and

processed products for the global market.

Mineral resources are the backbone of Kazakh development strategy. Priority

wise they are classified into three groups- (Government of Republic of Kazakhstan,

2007a: 278)

• Raw mineral resources providing basic monetary income and are of economic

and political significance: oil, gas, coal, uranium and chromites mines.

• Minerals providing basic monetary income and constituting the base of

industrial development of Kazakhstan: iron, manganese, copper, lead-zinc,

aluminium and gold mines.

• Minerals that are in high demand both in domestic as well as foreign markets

like tin, silver, phosphorus and barite mines.

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Among the CIS countries, Kazakhstan is second only to Russia in mineral

production (U.S. Geological Survey, 2009: 7). The Republic has vast resources of a

various metallic ores, industrial minerals and mineral fuels, and its metallurgical

sector is a major producer of a large number of metals from domestic and imported

raw materials. Kazakh mining sector produces bauxite, chromite, copper, gold, iron,

lead, manganese and zinc ores, and its metallurgical sector produces metals like

beryllium, bismuth, cadmium, copper, ferroalloys, lead, magnesium, rhenium, steel,

tantalum, titanium and zinc. The country produces other non-ferrous and precious

metals and industrial minerals as by-products (or in smaller-Scale operations), such as

arsenic, barite, cadmium, molybdenum, phosphate rock and silver. Kazakhstan is also

a large producer of mineral fuels, including coal, natural gas, oil and uranium.

In 2006, industry and mining accounted for about 39.5 percent of

Kazakhstan's GDP (U.S. Geological Survey, 2009: 7). The petroleum industry alone

accounted for about 30 percent of the GDP (ibid). Mining sector constituted for about

4 percent of the GDP and 19 percent of industrial production (ibid). In 2006, the

extractive industries accounted for about 58 percent of the value of industrial

production (ibid).

According to the Federation of International Trade Associations (2008),

Hydrocarbons (65 percent) and ores and metals (14 percent) accounted for 79 percent

of the value of Kazakhstan's exports (U.S. Geological Survey, 2009: 8). Exports of

metals were second after crude oil exports (ibid). The vast majority of Kazakhstan's

metal outputs are exported. China is one of the main markets of Kazakh metals.

Kazakhmys exported 85 percent of its copper cathodes and rods to China in 2006

(ibid). Kazakhstan and China agreement led to increase of iron ore exports to China

by 83 percent in 2006 compared to 2005 figures (ibid).

Kazakhstan is considered as "wide region of ferrous metal mines"

(Government of Republic of Kazakhstan, 2007a: 278). It is the home to some of the

unique metals and minerals. There are rich reserves of cobalt-nickel in this area. Some

other valuable mineral resources of Kazakhstan are vanadium mines of the

carbon-silicone strata of Kharatau, Baikhongyr, Kyndyktas and Zhonghar mountains

and titanium mines on the upper surface of western and northern Kazakhstan.

Kazakhstan is also rich in rare metals like molybdenum. Kazakhstan takes the fourth

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place in the world and the first place among the Asian countries in molybdenum

reserves (Government of Republic of Kazakhstan, 2007a: 279). With the opening of

major tin mine in Kokshetau, Kazakhstan is now self-reliant in the metal.

Complex mines are found in the form of mines containing lead, tin, copper,

silver, gold, mercury, cobalt, cadmium and other compounds. But these mines are

basically specialised in extraction of one metal, primarily lead followed by copper and

silver. There are more than ten thousand copper mines with their own structure, shape

and mineral composition registered in Kazakhstan.

Chromites: Kazakhstan occupies a leading position in the world in high-quality

chromites mines found in Kempirsay, Moghalzhar, etc. with reserves of 430 million

tonnes (Government of Republic of Kazakhstan, 2007a: 278). Kazakhstan is the

world's second largest chromites producer after South Africa (MBendi Information

Services, 201 0). In 2006, the production of chromites was 3.6 mi11ion tonnes (U.S.

Geological Survey, 2009: 40). The main deposit is Donskoi located in the Aktyubinsk

region, which has reserves estimated at containing 320 Mt (mi11ion tonnes) grading at

an average of 50 percent Cr20 3 (MBendi Information Services, 201 0). More than

50 percent of the production is exported while the remaining is used in the local

ferroa11oy industry (ibid).

Kazchrome is the main enterprise producing chromium in Kazakhstan. It is the

world's single leading chromium ore- mining enterprise, the world's third ranked

ferrochrome producing enterprise, and the world's leading ferrochrome producer on

the basis of chromium content (U.S. Geological Survey, 2009: 9). Kazchrome

supplied high-quality ferroa11oys to leading steelmakers in the world, including

countries in Central Asia, Southeast Asia, Europe, North America, and South America

(ibid). Kazchrome operates the Donskoi mining complex, the Ferrochrome ferroa11oy

works in Aktyubinsk and the Aksu ferroa11oys plant in Pavlodar region (MBendi

Information Services, 201 0). The government owns 31.4 percent of Kazchrome (ibid).

Kazchrome increased production of ferroa11oys by 11 percent to 1.25 Mt in 2003, and

the production of chromium ores rose by 13.4 percent to 2.69 Mt in 2003 (ibid).

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Manganese: Kazakhstan takes the third place among the CIS countries in manganese

production. Kazakhstan has 1 0 million tonnes of manganese reserves (Government of

Republic of Kazakhstan, 2007a: 278). It is available in Atasu and Zhezdy mines.

According to Mbendi Information Services (201 0), Kazakhstan has eleven

deposits located in the Central Zhezkazgan region, with a reserve of about 560 Mt

grading at an average of 21 percent manganese. High grade ore ( 40 percent

manganese) is available in only two deposits (Kamys and Ushkatyn deposits) that

contain only 0.2 percent of Kazakhstan's reserves (ibid). The KazMarganets

manganese mining and processing enterprise was Kazakhstan's main manganese

producer. KazMarganets is composed of the East Kamys and the Tur manganese ore

deposits (Karaganda region) and the Zhezdy processing plant. KazMarganets

indicated resources totalling 47.7 Mt of manganese ore with proven and probable

reserves totalling 24.5 Mt (U.S. Geological Survey, 2009: 1 0). Kazakhstan was the

world's 81h largest manganese producer in 2003 and produced 2.36 Mt of manganese

ore in 2003 (MBendi Information Services, 201 0). However, production decreased to

2.25 Mt in 2006 (U.S. Geological Survey, 2009: 40).

The industry has gone down in terms of production with three mining centres

operating at less than 20 percent of their capacities (design capacity for these

operations is estimated at 2.55 Mt/year) (MBendi Information Services, 201 0). All

three operations (the Atasuruda, Kazakhmarganets and Sary-Arkapolimetal) are

owned by Swiss based company Nakosta. The Zhairemsky GOK (90 percent owned

by Nakosta) is planning to increase its manganese concentrate production to 8640,000

t/y by developing several mines namely the Zhairem Dalnezapadny, Ushkatyn-III and

Zapadny operations in the Karaganda region (ibid).

Iron and Steel: Kazakhstan has huge iron ore reserves of about 12.5 billion tons,

40 percent of which is considered economically suitable for export and for

beneficiation (MBendi Information Services, 201 0). The average grade of iron ore

deposits is 39 percent iron, which according to international standards is of low grade

(ibid). The production increased significantly till 2004. Iron ore production decreased

in 2006 to 18.6 Mt compared to the previous highest of 20.3 Mt in 2004 in

Kazakhstan (U.S. Geological Survey, 2009: 40).

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Kazakhstan has three primary producing iron ore companies. The largest of

which is Sokolovsko-Sarbaiskoye Mining Production Association (SSGPO), which is

owned by the government (39.5 percent) and KMRC (Kazakhstan Mineral Resources

Corporation) (25.25 percent) (MBendi Information Services, 201 0). SSGPO is biggest

iron-ore producer in Kazakhstan and is responsible for about 80 percent of

Kazakhstan's iron ore production (ibid). It produced 16 Mt of iron ore concentrate and

fluxed pellets in 2006 (U.S. Geological Survey, 2009: 9). Kazakhstan's second largest

mine is located at Lisakovskiy (consisting ofbrown hematite) and the West Karazhal

centre, which is in hematite-magnetite rich volcanogenic sediments. Lisakovskiy is

located upon a major iron ore deposit believed to have reserves of 2,800 Mt (MBendi

Information Services, 201 0).

SSGPO's working mines are Sarbaiskiy, Sokolovskiy, Kurzhunkolskiy and

Katcharskiy, which are open pits and also a deep mine at Sokolovskiy. SSGPO is a

member of the Evraziisky Bank group, which also includes Aluminum of Kazakhstan,

the Company that controls Kazakhstan's alumina and bauxite industry, and

Kazchrome, the national chrome corporation. The Kazakh Government owns 39.5

percent of SSGPO and has included it on a list of potential blue chip companies (ibid).

Ispat-Karmet, the largest steel producer in Kazakhstan, based in the Karaganda

region, produces 3.5 Mt to 4.0 Mt/y of metal products, about 94 percent of which is

exported to more than 60 countries (MBendi Information Services, 201 0). Since 1995,

the Company is controlled by Ispat International, a division of the LNM group. Ispat­

Karmet's main sources of iron ore are the Lisakovskoye and Atasuskoye deposits.

The Atasu mine has proven reserves of 530 Mt of iron ore and 349 Mt of manganese

ore, and a capacity to produce 2.2 Mt/y of ore (ibid).

Copper: Kazakhstan is one of the leading regions of the world in copper reserves.

Kazakhstan accounts for one-third of copper reserves in the CIS (Government of

Republic ofKazakhstan, 2007a: 279).

Kazakhstan produced 457,000 t (tonnes) of copper ore (Cu content), 426,000 t

of smelter copper and 408,000 t of refined copper in 2006 (U.S. Geological Survey,

2009: 40). Kazakhstan has proven reserves of over 35 Mt, which grade at an average

of0.7 percent copper (MBendi Information Services, 2010). Although only 11 percent

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of these reserves were being exploited by 2003, still several major producers are

experiencing difficulties because of depleted ore reserves (ibid).

Kazakhstan's major copper producer is Kazakhmys PLC, which is engaged in

mining, beneficiating, smelting, and refining copper products, including copper

cathodes and rods. Kazakhmys PLC is a vertically integrated base metals company, of

which South Korea's Samsung has 42 percent shareholding (MBendi Information

Services, 201 0). The State also owns 35 percent interest in Kazakhmys PLC (ibid).

The company is the ninth-largest copper producer in the world and the fourth-largest

silver producer (ibid). In 2003, it produced 40.14 Mt of copper ore ( 41.14 Mt in 2002)

and 417,366 t of refined copper as well as 54,645 t of copper wire rods (ibid).

Kazakhmys operated 19 open pit and underground mines and 2 smelting and refining

complexes as in 2006 (U.S. Geological Survey, 2009: 9).

Kazakhstan has various types of copper deposits like porphyry, silicon,

pyrites, scame, copper-ceolith, copper-nickel, etc. The majority of copper occurs in

copper porphyries and sediment deposits. A smaller percentage of copper is available

in copper pyrite deposits. Kazakhstan's main copper producing areas are in the

Zhezkazgan region, which produces 60 percent of copper (MBendi Information

Services, 2010). Other major copper producing regions are the Semipalatinsk and

Pavlodar regions.

Porphyry mines take the first place among copper productions. Its composition

is rich and suitable for open extraction. However, these mines contain less copper -

around 0.30-0.7 percent (ibid). Their shares in the copper production account for 4-12

percent of the copper production (ibid). Molybdenum, gold and rhenium are extracted

also in these mines. The porphyry type of copper has the major contribution in the

world-copper production. It contains over I percent of copper and 0.3 gr. gold in its

composition. Porphyry mines are found mainly at Khongyrat in Kazakhstan.

In terms of reserves, copper sandstone mines, which is extracted together with

grey carbon silicon mines occupies the second position (27.8 percent) (Government of

Republic of Kazakhstan, 2007a: 279). Zhezkhazghan and Zharnanaibat copper

reserves in Kazakhstan have over 10 million tonnes of copper (ibid).

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There are few scarne mines in Kazakhstan also. These mines contain high but

unequal composition of copper and are rich in gold, bismuth, cobalt, rhenium and

other compounds. Sayakh scarne mine, which is operating at present, is also close to

depletion (Government of Republic of Kazakhstan, 2007a: 279). The reserves of

copper silicon and pyrites in Zhezkhazghan, Orlovsk and Nikolayevsk will be able to

compete in the international market in the coming 17-30 years (ibid).

Lead and zinc: Kazakhstan is the largest producer of lead and zinc in the CIS

(MBendi Information Services, 201 0). However, production has dropped by

75 percent since its highest output levels in the 1980's (ibid). Kazakhstan produced

400,000 tonnes of zinc and 48,000 tonnes of lead concentrate in 2006 (U.S.

Geological Survey, 2009: 40). Kazzinc (owned by Swiss based Glencore) is the

country's largest producer of lead, zinc, gold and silver (MBendi Information

Services, 201 0). In 2006, Kazzinc produced 289,095 t of zinc (U.S. Geological

Survey, 2009: 9). It has five mines, two zinc plants and one lead plant. It is also

developing two new zinc deposits- Novoleningorsk and Obruchevsky deposits.

Novoleningorsk has total deposits of about 1.8 Mt of grading 4 percent zinc (MBendi

Information Services, 201 0). Kazzinc operates the Maleyevsky and Tishinsky mines

that produced 246,000 t of zinc and 144,000 t of lead in 2000 (ibid). Kazakhstan

produces sufficient quantity of these metals to cater to the domestic as well as export

needs.

Irish based Ennex International Pic have 95 percent interest in the Shaimerden

zinc deposit that is located in the Kostanai Oblast in northern Kazakhstan, some

240km south-west of the regional capital of Kostanai (ibid). Shaimerden is a high

grade zinc oxide deposit that has a resource of 4.6 Mt grading 21 percent zinc (ibid).

ShalkiyaZinc-N.V. is another zinc and lead mining company in Kazakhstan.

The Company's main operations are located in southern Kazakhstan and includes the

underground Shalkiya Mine in the Kyzylorda Region, a processing plant near Kentau,

located 165 km southeast of the Shalkiya Mine and the Talap deposit, which is a

greenfield deposit located 30 km southwest of the Shalkiya Mine (U.S. Geological

Survey, 2009: 9). One of the Company's major assets is the Shalkiya deposit, which is

the largest known zinc deposit in Kazakhstan and accounts for about 30 percent of

Kazakhstan's total zinc reserves (ibid).

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Bauxite: Kazakhstan has large bauxite reserves too, most being hosted in sedimentary

karst deposits. A reserve base of 350 Mt grading at an average 44 percent alumina has

been established (MBendi Information Services, 2010). However, according to U.S.

Geological Survey (2009: 9), total bauxite reserves are reportedly 356.7 Mt in the C1

category, according to the reserves classification system used first in the Soviet Union

and then in Kazakhstan, with another 82.3 Mt of C2 reserves and 13.3 Mt of

sub-economic (zabalansovye) reserves (ibid). The country produced 4.8 Mt of bauxite

and 1.51 Mt of alumina in 2006 (ibid).

Bauxite reserves are concentrated in the northern part of the country. The

Krasnooktyabrskoye Bauxite Mining Directorate (KGBR) and the Torgayskiy Bauxite

Mining Directorate are Kazakhstan's leading bauxite producers and the main

suppliers ofbauxite for the Pavlodar alumina plant. All bauxite mined in Kazakhstan

is processed into alumina at the Pavlodar plant, which is one of the world's ten

leading alumina plants in terms of output (U.S. Geological Survey, 2009: 9).

Aluminum of Kazakhstan is one of the world's ten largest alumina producers,

its Pavlodar alumina plant produced 1.42 Mt in 2003 (MBendi Information Services,

201 0). Gallium is produced as a by product. Aluminum of Kazakhstan controls

Kazakhstan's alumina and bauxite industry and is partly owned by KMRC (28.2

percent) and the Government (31.7 percent), with the remainder owned by corporate

and private investors (ibid). The Company controls the Torgai and Red October

bauxite mines in the Kostanai region, the Keregetas limestone quarry and a CHP plant

in the Pavlodar region.

Beryllium and Tantalum: Kazatomprom, which controlled Kazakshtan's entire

uranium industry, is engaged in full-cycle beryllium production that extends from ore

processing to production of beryllium alloys at its Ulba Metallurgical Plant in

Oskamen. Ulba is the only plant in the CIS with this production capability (U.S.

Geological Survey, 2009: 9). Ulba is also the only enterprise in the CIS with the

capability to process tantalum feedstock and produce finished products (ibid).

Kazatomprom did not have its own tantalum resources and thus purchases tantalum

concentrate (ibid).

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Titanium: The Ust-Kamenogorsk titanium-magnesium complex (UKTMK) produces

about 50 percent of its design capacity (U.S. Geological Survey, 2009: 1 0). It

exported about 50 percent of the titanium sponge it produced to the United States in

2006 (ibid). It developed its own domestic resources of titanium raw material (which

it had previously imported primarily from Ukraine) and also commissioned facilities

to produce titanium ingots and slabs. Ilmenite placer deposits are located in the north

and west of the country, which are estimated to contain a total of over 3 Mt Ti02

(MBendi Information Services, 201 0). Ilmenite ore are mined at the Obukhovskoye,

the Satpayevskoye, and the Shokashskoye deposits in Kazakhstan (U.S. Geological

Survey, 2009: 1 0). Kazakhstan produced 25,000 t of ilmenite and leucoxene, and

23,000 t of titanium sponge in 2006 (ibid).

Tungsten: Kazakhstan accounts for 15 percent of the world tungsten reserves

(Government of Republic of Kazakhstan, 2007a: 279). In terms of reserves,

Kazakhstan ranks first in the world. The main types of tungsten mines are quartz­

linear-grazer and stock work, which are found in Kharaoba, Akhshatau, Upper

Khairakhty, Boghyty, etc. Mines rich in tungsten are found in scarne-grazer (Northern

Strata and Bayan) or cave strata (Koktyngkol).

Kazakhstan has 16 registered tungsten mines and nearly 85 percent of them

are stock work mines (ibid: 282). It is available in East Khairakhty, Bughyty,

Koktingkol, Kharaoba, etc. The share of tungsten trio xi des found in them is 0.12-0.19

percent (ibid).

Precious Metals

Gold and silver: Gold mining in Kazakhstan dates back to 4500 BC. At present, there

are 1800 gold and silver mines, 127 of which are of significant for production and

makes up 69.5 percent of explored metal (Government of Republic of Kazakhstan,

2007a: 282). Experts predict that the profit from these reserves may amount to

US $52.5 billion, which will amount to a significant part of the state budget (ibid).

Kazakhstan produced approximately 9.79 tonnes of refined gold in 2005

(U.S. Geological Survey, 2009: 40). Kazakhstan has many known gold deposits. The

Republic's gold reserves is over 1,500 tonnes of gold with average ore grades of over

6 grams/tonne - the third largest reserves in the CIS, after Russia and Uzbekistan

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(MBendi Information Services, 201 0). At least 60 percent of these reserves are hosted

in lode gold deposits, 38 percent hosted in polymetallic deposits and the remainder in

placer deposits (ibid). At present, most gold is derived as a co-product from

polymetallic mines. Kazakhstan is focussing to develop the primary lode gold

deposits. It is estimated that only 40 percent of Kazakhstan's gold reserves is

economically exploitable using current extraction technology (standard gravity and

flotation techniques) (ibid). Kazakhstan aims at increasing gold production to over

50 tonnes per year by using the latest technology (like heap leaching) but in order to

achieve this, the industry would require an estimated US $1 billion of investment

(ibid).

However, according to Kazakhstan International Business Magazine (2004),

total gold reserves in Kazakhstan are estimated at about 800 metric tonnes of gold

with average grade of 6.3 grams per tonne (Bekzatov 2004). There are 237 gold ore

areas registered with the Kazakhstan State Reserve, out of which 122 are thorough

deposits, 81 complex ones and 34 gravel ones (ibid). The main producers of gold in

Kazakhstan are specialized gold mining companies and non-ferrous metals factories,

where gold comes as a by-product of the base metal production. The largest producer

of gold in Kazakhstan is Kazzinc with average annual production of 5.5-6 tonnes

(ibid). The second largest producer is Kazakhmys Corporation that made (as

co-element in the copper production) more than 4 tonnes of gold in 2001 (ibid). In

2003, Kazakhmys produced a little less than 3 tonnes of gold (ibid). Approximately

one hundred gold mining licenses are awarded to different companies in Kazakhstan

(ibid). But only about 35 companies are actually developing gold fields now (ibid).

Among the largest gold mining companies that account for 90 percent of total

investment are AltynAlmas, Maikainzoloto, Bakyrchikskoye GDP, CharaAityn, ABS

Balkhash, GMP Pustynnoye, Altyn Tobe, Ken, Aiel, Andas Altyn, Kazakhaltyn,

Altyn Aimak (ibid).

Some of the important gold mines in Kazakhstan are Bakyrchik gold mine

near Almaty (130,000 oz (ounce)/year production capacity) operated by Ivanhoe

Mines Ltd (Ivanhoe Mines Ltd (70 percent) and Government of Kazakhstan (30

percent)); Central Mukur and Myaly gold mine in north-eastern part of Kazakhstan

(1 0 Mt) operated by Andas-A1tyn LLP; Leninogorsk gold mine in Altai mountains;

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Suzdal gold mme m north-eastern part of Kazakhstan (200,000 oz proven and

probable reserves) operated by Celtic Resources Pic; Varvarinskoye gold mine in far

north of Kazakhstan (2 million ounce [Moz]) operated by European Minerals

Corporation (Kazakhstan); Vasilkovskoye gold mine in Kokchetav region (382 t), etc

(MBendi Information Services, 201 0).

The largest gold field in Kazakhstan is Vasilkovskoye field located in the

Akmola region, 17 km northwest from the city of Kokshetau (Bekzatov 2004). The

field. proven reserves are estimated at 370 tonnes with average grade at 2.8

gram/tonne (ibid). It is developed by JV Vasilkovskoe Zoloto (VasGold), a joint

venture of the Floodgate Holding BV (Netherlands) with 60 percent, and the

Kazakhstan's State Property Committee with 40 percent (MBendi Information

Services, 201 0). It began gold production in January 2002 and produced 955 kg in

2003 (ibid). Bakyrchik gold mine situated in north-eastern Kazakhstan {approximately

100 km from the city of Semipalatinsk) is the second largest by reserves (Bekzatov

2004). The estimated reserves of the field are 326 tonnes with average grade of 6.9

grams per tonne (ibid). Next largest by reserves and industrial importance are the

fields developed by Kazakhaltyn Mining and Metallurgy Company: Aksu,

K varcitovye Gorki, Bestube, and Zholymbet. Kazakhaltyn has reserves estimated at

41.58 Mt containing around 160 t of gold (MBendi Information Services, 201 0).

Among the prospective fields are those of Akbakay group: Akbakay, Beskempir,

Aksakal and Karyernoe located in Zhambyl region (Bekzatov 2004). ABS Balkhash

develops a number of small gold fields in the Central and Southern Kazakhstan. At

present the extracting operations of ABS Balkhash are concentrated on the Ushhoky,

Pustynnoye and Mynaral fields (ibid). GRK Altyn Tobe develops the Zhanan field in

the Eastern Kazakhstan region, 140 km away from Semipalatinsk.

The Kazakh gold miner Charaltyn was formed in 1994 and produces gold in

eastern Kazakhstan based on total reserves of more than 85 t (MBendi Information

Services, 201 0). Charaltyn also plans to begin gold production at Zhaima, one of the

12 gold districts in the Char zone. A new gold ore-processing complex was

inaugurated at the Komarovskoye deposit in the Zhitikara district of northern

Kazakhstan in December 2003 by Metall Trading, which holds the gold exploration

and mining rights (ibid). The deposit is expected to produce up to 1 t/y of gold (ibid).

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Irish based Celtic Resources Holdings Pic operates the 100 percent-owned

Suzdal gold mine in northern Kazakhstan (MBendi Information Services, 201 0).

Suzdal contains an estimated 1.5 Moz of gold (ibid). The mine had a production of

37,000 oz in 2003 (ibid). Aiel Finance and Investment Corp, Celtic's wholly-owned

subsidiary, holds the Suzdal licence. The deposit has confirmed reserves of 5.17 Mt

averaging 8.96g/t Au (ibid). Celtic also owns 75 percent of the Zherek deposit,

located 28 km from Suzdal and is producing since mid-2003 (ibid).

Silver too is available in Kazakhstan from the ancient times. Kazakhstan is

one of the leading countries in the world in silver reserves and ranks first in Asia and

the CIS (Government of Republic of Kazakhstan, 2007a: 282). It is extracted in the

process of production. Kazakhstan produced 830 tonnes of silver (mine output) in

2006 (U.S. Geological Survey, 2009: 40). Kazzinc is the country's largest producer of

silver (MBendi Information Services, 201 0).

Energy Resources

Oil: Rich energy reserves make Kazakhstan an important country in the region.

According to 2008 estimates, Kazakhstan produced annually 72 million tonnes of oil

and its condensate (BP Statistics 2009). It accounts for 1.8 percent of world's oil

production in 2008 (ibid). It is estimated that the Republic will probably produce

120-140 million tonnes of oil and oil condensate by 2015 (Government of Republic of

Kazakhstan, 2007a: 282). Once it reaches this figure, Kazakhstan will be in the list of

top ten oil producing countries in the world (ibid).

Oil is mainly concentrated in the western part of Kazakhstan touching the

Caspian Sea. Kazakhstan has most of the largest known oil fields in the Caspian Sea.

According to BP Statistics (2009), Kazakhstan's combined on-shore and off-shore

proven hydrocarbon reserves in 2008 are 39.8 billion barrels (5.3 billion tonnes) of

oil, which is 3.2 percent of total proven oil reserves of the· world. Major oil producing

enterprises includes CNPC-Aktobemunaigaz, Hurricane Kumkol Munai,

Karachaganak Petroleum Operating BV, Mangistaumunaigaz, the Tengizchevroil

joint venture and Uzenmunaigaz, which in 2006 accounted for about 70 percent of

hydrocarbon production of Kazakhstan (U.S. Geological Survey, 2009: 10). Other

production is available in smaller fields. Oil production growth is expected to increase

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in the next decade primarily from the Tengiz field, where production is expected to

double and from the Kashagan offshore field. Kashagan, which is located off the

northern shore of the Caspian Sea near the city of Atyrau, has the capacity to produce

an additional 1 million barrels per day (Mbblld) after 2011 (ibid). The Tengiz field,

which is developed since 1993 by the Tengizchevroil joint venture, is the country's

leading oil producer; it has recoverable crude oil reserves estimated by Chevron Corp.

to be between 6-9 billion barrels (ICG Report 2007: 7). According to Chevron, Tengiz

has potential to produce 700,000 bbl/d by 2010 if its sour gas injection programme

were fully implemented (U.S. Geological Survey, 2009: 10).

The Kashagan field is the largest oil field outside the Middle East in terms of

reserves and the fifth largest in the world. The field's recoverable reserves are

estimated to be 13 billion barrels of oil equivalent, with total reserves of about

38 billion barrels of oil (EIA 2008: 3). The field could produce about 300,000 bbl/d

by late 2011, and full-scale commercial production is expected to commence in 2013

(U.S. Geological Survey, 2009: 11). The peak production from Kashagan is estimated

to be about 1.3 Mbbl/d (ibid). The Kashagan field presented particular .challenges for

its developers because it contains a high proportion of natural gas under very high

pressure and contains large quantity of sulphur. Offshore platforms must also

withstand extreme weather fluctuations in the northern Caspian Sea. Additional oil

production could originate from the Karachaganak oilfield and gas condensate field

onshore in northern Kazakhstan, near the border with Russia's Orenburg field.

Karachaganak's oil reserves have been estimated to be between 8-9 billion barrels of

oil and gas condensate (EIA 2008: 4). Kazakhstan has three oil refineries in operation.

Natural Gas: The gas industry of Kazakhstan, which is relatively new, has been

developing since the 1970s. During the Soviet period gas was transported from

Southern Manghystau to European parts of the erstwhile USSR through Central Asia­

Central gas pipeline. Gas from Bukhara, however, caters to the needs of the

population ofShymkent, Taraz, Almaty, Akhtobe, Khostanai Oblasts and Torghai.

As in 2006, more than 70 percent of the country's natural gas was produced by

international consortia at the Karachaganak and the Tengiz fields (U.S. Geological

Survey, 2009: 10). ln 2007, the Oil and Gas Journal stated that the proven natural gas

reserves in Kazakhstan is 100 trillion cubic feet (about 2.8 trillion cubic meters),

172

which is roughly equal to Turkmenistan's natural gas reserves (ibid). However,

according to BP Statistics (2009), Kazakhstan's proven gas reserves in 2008 are

1.82 trillion cubic metres (64.4 trillion cubic feet), which is 1 percent of total world

natural gas reserves and produced 30.2 Bern of gas in 2008. Most of Kazakhstan's

natural gas reserves are located in the west of the country, with about 25 percent of its

proven reserves located in the Karachaganak field (U.S. Geological Survey, 2009:

1 0). This oil and gas condensate field reportedly has proven natural gas reserves of 48

trillion cubic feet (1.36 trillion cubic meters) (ibid). The consortium developing

Karachaganak expects to produce 900 billion cubic feet (about 25.5 billion cubic

meters) by 2012 (ibid). Natural gas production in Kazakhstan is almost entirely

associated gas. Kazakhstan has three gas processing plants (ibid).

Coal: Coal is the one of the primary sources of energy and will remain so in the near

future. Coal reserves are significantly higher than other energy sources. Coal is used

mainly for energy, cooking, commune household and other needs in Kazakhstan.

Since 2000, there have been major changes in the coal industry as part of economic

reform process. Kazakhstan now acquired the capability of producing more coal and

is applying new technology for coal production.

Kazakhstan contains largest recoverable coal reserves in Central Asia.

According to BP Statistics (2009), Kazakhstan has 31,300 million tonnes of coal

reserves (3.8 percent of world total) and produced 114.7 million tonnes of coal in

2008. Kazakhstan claims to be among the world's top 10 leading countries in coal

reserves (U.S. Geological Survey, 2009: 10). Approximately 30 percent of

Kazakhstan's coal is exported, mainly to Russia and the Ukraine (MBendi

Information Services, 201 0). The remainder is used in the domestic power generation

industry (80 percent of Kazakhstan's' power requirements are coal based) as well as

the iron and steel industries (ibid). Kazakhstan is the former Soviet Union's 2nd largest

producer of coal, after Russia. There are plans to reduce coal consumption by 45

percent by 2024 as part of Kazakhstan's programme to achieve sustainable growth

(U.S. Geological Survey, 2009: 1 0). At the same time, the use of renewable energy is

targeted to increase from 0.2 percent in 2006 to 5 percent in 2024 (ibid).

The country has more than 400 coal deposits of which one third are classified

as brown coal or lignite deposits (MBendi Information Services, 201 0). The reserves

173

are located mainly in the Ekibastuz, the Karaganda, the Shubarkol deposits and in the

Turgai coal basin. Most coal production is sourced from two main basins, the

Karaganda Basin, which supplies coking coal from underground mining operations

and the Ekibastuz Basin (the third largest coal basin in the FSU), which supplies coal

to the power generation sector. The Karazhir deposit is one of Kazakhstan's higher

grade coal deposits containing more than 1 billion tons of reserves, with a large

proportion being open pittable (ibid).

By 2006, coal mining in Kazakhstan was conducted by 33 ~ompanies, which

included five foreign companies (U.S. Geological Survey, 2009: 1 0). Several foreign

companies are investing in some of the Kazakhstan's coal industries. KMRC owns

32.8 percent of the Eurasian Energy Corporation, with the remaining 24.3 percent by

the government and the balance as public and corporate shares (MBendi Information

Services, 201 0). Bogatyr Access Komir LLP is the largest open cast mining company

in Kazakhstan (ibid).

Ispat-Karmet, Kazakhstan's biggest steel producer, operates several coal

mmes to supply coal to its steel factories, producing just over 7 Mt from the

Karaganda region. Another major producer in Kazakhstan, Bogatyr Access Komir or

BAK owns the Bogatyr mine, which is wholly owned by the US Access Industries

Inc. The mine has a projected capacity of 50 Mt/y.

Uranium: Kazakhstan was the former Soviet Union's (FSU) largest uramum

producer but the industry has suffered a drop of more than 65 percent since the

collapse of the Soviet Union (MBendi Information Services, 201 0). Kazakhstan

accounts for about 817,000 tonnes of recoverable uranium reserves, which is

15 percent of the world's uranium reserves, holding second position in the world

(WNA 2009e). Kazakhstan has identified reserves containing 450,000t uranium, most

of which is located in five major deposits (out of a total of 53 known deposits)

(MBendi Information Services, 201 0). KazAtomProm National Atomic Company JSC

stated that in 2009 Kazakhstan ranked the first in uranium mining (Embassy of the

Republic of Kazakhstan in India, 201 Oa). Natural uranium extraction made up 13,665

tons in 2009 (ibid). At present, there are 21 mines functioning in the Republic (ibid).

The 2009 growth made up 63 percent against 2008 (8521 tonnes) (ibid).

KazAtomProm is the country's largest importer and exporter of uranium and is rated

1.74

as one of the ten largest producers in the world (MBendi Information Services, 2010).

Most production is exported to Russia, Western Europe and South Korea.

Kazakhstan's uranium industry is regulated by state controlled company

KazAtomProm. KazAtomProm subsidiary, the Ulba Metallurgical Pant (UMZ), is

Kazakhstan's largest uranium producer (and also the largest nuclear fuel producer in

the CIS) (ibid). UKazatomprom is responsible for the country's uranium imports and

exports, and has proven uranium reserves totalling 926,000 t (ibid).

KazAtomProm has a joint venture to develop the in-situ leach Inkai deposit

with major uranium producer, Cameco (Canada), which has a 60 percent interest in

the joint venture (MBendi Information Services, 201 0). The Inkai deposit is located in

south-central Kazakhstan, about 370 km from the regional capital of Shymkent and

some 1,000 km northwest of Almaty. KazAtomProm and French producer, Cogema

both hold 45 percent interest in KA TCO, a company that has been evaluating the

Muyunkum deposit located in the southern parts of the country (ibid). Cogema is said

to be developing a deposit in the Zhambyl region. One of Kazakhstan's largest

uranium facilities is the Tselinney mining and beneficiation complex.

THE PRIVATISATION OF INDUSTRIES AND ITS IMPACT

The Privatisation Initiatives-

Liquidity crisis in Kazakhstan post-independence forced the government to privatise

the economy (Olcott 2002: 136). Few steps to privatise the economy were taken

immediately after independence but concrete steps were taken from 1995. The

government from 1995 introduced policies to privatise all public assets into private

ones in a phased manner. The government initiatives to privatise the economy were

mainly to attract foreign investment, stimulate production, and to free the State from

sharing responsibility for the debt-ridden enterprises (ibid).

Olcott (2002: 136) said that after the disintegration of Soviet Union,

Kazakhstan's "economic collapse was neither unique nor especially severe". Since

early 1980s, the industrial output in whole of erstwhile Soviet Union was gradually

declining (in real terms) and Kazakhstan was no exception. Kazakhstan's economy at

the time of independence and immediately after independence was on "precipitous

175

decline" (ibid). Industrial production dropped by 25 percent in 1994, and

Kazakhstan's GDP in 1995 was 31 percent below the 1991 figure (ibid).

After decades of Soviet economic experience, the decision to privatise was not

an easy task for the newly independent Kazakh government. As one of the initial

measures, Kazakhstan implemented the 'National Programme on State

De-monopolisation and Privatisation' to change state ownership. The Programme was

implemented in three stages-

a) The privatisation ofhousing using flat coupons (1991-1992),

b) Mass privatisation using investment privatisation coupons ( 1993-

1995),

c) The Privatisation of individual projects ( 1996-1998).

As a consequence of privatisation drive by the government, the private sector

employed about 60 percent of the labour force by 1999 (Olcott 2002: 137). As of in

July 1999, 75.6 percent of the economy was privatised, including 80.2 percent of

small enterprises, 40.8 percent of medium enterprises, and 52 percent of large

enterprises (ibid). But the privatisation process was not completely fair. The latest

stage of privatisation was criticised as "the Kazakh sale of the economy" (ibid).

The first stage of privatisation involved reforming communal and dwelling

houses through dwelling coupons. The process actually changed the ownership of

state-provided apartments to the private property of the occupants. The first stage

rather went smoothly without much public objection. Inequities existed, which was

the result of demography (ibid). As a result of Soviet practice of "hiring and

promotion practices" a large number of better apartments; especially those in the

Almaty went to the Russians (ibid). Moreover, cultural differences influenced

selection of jobs during the Soviet era. This resulted in "disproportionate number of

stores and kiosks becoming the property of Slavs or Uzbeks and Uighurs, all ofwhom

had a stronger mercantile tradition than did the Kazakhs" (ibid).

The second stage of Privatisation began in 1993. The government started the

'coupon privatisation programme' for medium-sized firms and factories with more

than 200 employees. The problems of economic transition in Kazakhstan became

acute at this stage. Olcott (2002: 1 37) argues that "spontaneous privatisation"

176

(essentially a form oflegalised theft) of saleable commodities existed even before the

disintegration of the USSR, which also favoured the Russians. The number of Russian

engaged in jobs like managers of factories, mines and warehouses were more than that

of the Kazakhs. After independence, the Kazakh government tried to assure the

Kazakhs that they would benefit from the economic reforms.

Kazakhstan like Czechoslovakia and Russia introduced a voucher system. The

process involved

"vouchers representing a set value were distributed to all the citizens of Kazakhstan, which they could deposit in one of the many Investment Privatisation Funds (IPFs), established for the purpose. The various fund managers would then bid for up to 20 percent of the shares in the mid-sized enterprises that were offered at privatisation auctions, using their vouchers as initial capital. Fifty-one percent of shares were to be auctioned, 1 0 percent were to be given to the workers and staff, and 39 percent went to the government" (Olcott 2002: 137).

The IPFs worked like a "combination of governing board and mutual fund,

protecting their members' investments while helping to encourage greater efficiency

and probity in the various enterprises" (ibid: 137-138). 170 investment funds were

already registered by the time the first 3,500 enterprises were privatised in April 1994,

which tried to give the Kazakh citizens a "wide choice" (ibid: 138). More than

three-fourths of the vouchers were in one-fourth of the funds, while half the funds

constituted 4 percent of the vouchers (ibid). Butya-Kapital fund alone received nearly

1 0 percent of Kazakhstan's vouchers, making it the largest "single actor" in the

second stage of privatisation (ibid).

Kazakhstan as a part of its privatisation process established National and State

Joint Stock Companies and Holding Companies to manage state property shares in

share holding capital. The foundation process of Joint Stock and Holding Companies

was completed by early 1994. Six National Joint Stock Companies, forty five

state-run Holding Companies, twenty four state-run Joint Stock Companies, four Joint

Stock and Holding Companies, one regional-territorial and one republican concern

with state participation were established in this phase (Government of Republic of

Kazakhstan, 2007a: 253).

These organisations planned to improve the management of industries and

raise their level at the "expense of diversification, as well as develop investment and

177

industry" (Government of Republic of Kazakhstan, 2007a: 254). But in actual

practice, most of them were turned into monopoly organisations obstructing the

growth of competition in the market. The government gradually opted

de-monopolisation ofNational Joint Stock, State Joint Stock and Holding Companies.

The government also started selling state shareholdings. The Committee on State

Property sold state shareholdings of Joint Stock Companies, companies of

construction complex and 'Zhihaz' State Holding Company. The government also

planned to sell gradually light and local industries, trade and services Joint Stock

Companies.

As the second stage of privatisation progressed, funds were accumulated in the

hands of few fund managers, which became the 'new economic elite' of Kazakhstan.

Some of them later on hold important government posts like Mukhtar Ablyazov of

Astana Holding was appointed as the Minister of Energy, Industry, and Trade in 1998

(Olcott 2002: 138).

Common people, both Russians and Kazakhs in Kazakhstan, grew suspicious

about the privatisation process. There were rumours that state properties with

'deflated assessments' were being sold at closed auctions. There were protests against

the government policy, which forced the government to remove the then Prime

Minister Tereshchenko in 1994. Akezhan Kazhegeldin became the new Prime

Minister but he went ahead with the privatisation process more vigorously.

Kazhegeldin also tried to improve the foreign investment climate in the Republic,

which the Legislature was reluctant to do (Olcott 2002: 138). The Kazhegeldin

government introduced laws through Presidential Decree in the nine-month gap

between Parliaments ( 1993-1994) (ibid). The new Kazakh Legislature accepted most

of the new laws prepared in 'consultation with the international financial institutions'

(ibid). The objective was to make the privatisation process "more transparent and to

protect the rights of property owners, as well as to stimulate the development of

small- and medium-sized businesses" (ibid).

By March 1996, small-scale privatisation in Kazakhstan was completed with

93 percent of small enterprises in industry and agriculture already privatised (ibid).

The shares of 1,600 large enterprises were put up for sale at twenty-two auctions and

the shares represented the charter capital with a nominal value of 1 ,261,500,000 tenge

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(ibid). In early 1997, Umirzak Shukeyev, the then Economics Minster announced that

there were 90,000 small- and medium-sized businesses, which included small traders

employed 20 percent of the labour force, or 1.65 million people in Kazakhstan (ibid:

13 8-13 9). Olcott (2002: 13 9) argued that the economic impact of these small and

medium sized enterprises was however not immense; producing only 160 billion

tenge worth of products, or some 10 percent of the GDP in 1996, accounting for 5

percent of exports and 15 percent of imports.

The third phase of privatisation was initiated to privatise large enterprises,

which was to begin in 1995 but postponed until 1996. This phase was termed as

"privatisation through individual projects and case-by-case privatisation" (Olcott

2002: 139). The natural resource and industries based on these resources were initially

decided to remain as public property but as the financial crisis intensified, a few of

these enterprises were also sold. The process involved selling of companies or placing

the management of companies to individual investors through an "individually

negotiated arrangement" (ibid). Corruption at this stage was rampant. Sources of

finance were limited and most of these enterprises were under huge debts. A number

of them had unproductive assets- such as day-care centres, hospitals, and apartment

buildings for their workers, which were additional burdens. The government

introduced the system of 'management contract' by which the government or

government-controlled companies engaged foreign partners to update or renovate

existing factories and to market the enterprise's assets without fully assuming its

debts. The foreign partners had the first rights to purchase shares from the

government-controlled enterprises. But for this the enterprises were to free themselves

from their social welfare responsibilities. Management contracts' was introduced in

the second stage of privatisation. During the period December 1994 - August 1996,

the government offered __ fortyJwo of these contracts (ibid). This included contracts

given to the subsidiaries of the Trans-World Metal Corporation (and its sister

companies, Japan Chrome, Ivedon International, and White Swan of England), which

was a group oflargely Russian metal traders.

The first enterprise privatised under the privatisation of individual projects

was the Almaty Tobacco Factory. International companies took part in this

privatisation drive. The shares of the Company were sold to 'Philip Morris'.

179

Kazakhstan got US $96 million in cash and US $200 million as an investment by

selling 90 percent of the shares (Government ofRepublic ofKazakhstan, 2007a: 254).

Within the individual projects privatisation programme, five enterprises were sold,

forty four enterprises were given to reliable management, among them twelve

enterprises were given to foreign entities (ibid). The government approved

privatisation in the oil and gas industry, energy, transport, communication, ferrous

and non-ferrous metallurgy.

With Kazhegeldin's removal in 1997, Trans-World suffered a blow. David

Reuben, an Israeli, headed the Trans-World Group. He was associated with the

Chemoy brothers who were said to be engaged in organised crime (Olcott 2002: 140).

Oleg Soskovets, former first Deputy Prime Minister of Kazakhstan and then of Russia

also supported the Trans-World. Oleg Soskovets was said to be close with Akezhan

Kazhegeldin. It is said-that one of the original partners of Trans-World, Aleksandr

Mashkevich, left the company after allegation of misusing company assets in which

Nazarbayev's family was also involved (ibid).

After replacement of Kazhegeldin, the Trans-World Metals became a

particular target and the Kazakh government and Trans-World Metals were in legal

battles over number of cases (ibid). President and his coterie benefited from the

transactions (ibid). These management contracts also had an impact on

centre-periphery relations. Social obligations shunned by the enterprises were taken

up by the Oblasts.

New investments in industries revived the state enterprises and increased the

manufacturing capacities. It helped them to improve their budget figures. For

examples, 'Karmetkombinat', a State Joint Stock Company was given to the firm

'Ispat'; 'Oskemen khorghasyn-myrysh---kombinaty' to 'Rider-Invest' (later

'Kazmyrysh'); 'Zhezkazghan tustimetal' to 'Samsung', etc. In spite of few drawbacks

in selling State enterprises to foreign companies, this provision was effective in

reviving financially the real sectors of the Kazakh economy (Government of Republic

of Kazakhstan, 2007a: 256). The government initiatives to restructure the bankrupt

processing industries encouraged the industrial base of the country.

180

There were controversies regarding privatisation of some of the enterprises

under the 'management contract' scheme like the Karaganda Metallurgical Combine

(Karmet). Karmet, a big steel mill was declared bankrupt. It was later offered to Ispat,

an Indian steel producer. There are rumours that the transaction benefited

Nazarbayev. Karmet was given to Ispat in exchange of $50 million payment; while

the mill had a $1 billion replacement cost (Olcott 2002: 140). The plant accounted for

10 percent of Kazakhstan's GDP in 1995 'even working at its half capacity' (ibid).

Three oil-producing compames ('Manghystaumunaigas',

'Kharazhanbasmunai', 'Akhtobemunaigas') and twenty two enterprises in gas

industry were privatised in 1997 (Government of Republic of Kazakhstan, 2007a:

255). Telecommunication sector was also privatised; and 40 percent state shares of

the Kazakh Telecom National Joint Stock Company were sold (ibid).

Olcott (2002: 140) argued that "privatisation of Kazakhstan's most valuable

assets remains both slow and corrupt". Only sixty two of the 194 enterprises enlisted

for privatisation in 1996-1997 were in practice offered for sale despite government's

decision to complete privatisation by July 1997 (ibid). The delay was mainly because

of depreciation of value, while the 'asking price' was too high (ibid). For example, in

December 1998, Ust-Kamenogorsk Titanium and Magnesium Plant could not be sold

because its share price dropped to one-tenth the August 1997 value (ibid).

However, by August 1997, privatisation of small enterprises was completed.

Around 17,070 objects and 11,000 automobiles were privatised (Government of

Republic of Kazakhstan, 2007a: 256). Small and medium scale businesses m

consumption goods production developed from this time. It also led to the growth of

paid services for population. The completion of the privatisation process in the small

enterprises resulted in the development of competition- and- entrepreneurship in the

Republic (ibid).

The government target was to complete the sale of the country's principal

assets by gradually transforming them into open stock companies. The Kazakh

government reorganised the stock market in 1997 to facilitate the privatisation of the

country's largest utility companies, its major banks and some of its natural resources.

In 1996-1997, three laws- the Law on Securities, the Law on Investment Funds and

181

the Law on the Registration of Securities Transactions were passed to facilitate the

privatisation process. These laws were modelled after the U.S. securities exchange

legislation of 1933. Only three companies were fully tradable on the stock exchange

by June 1998, though the target was to trade shares of thirteen large companies

(Olcott 2002: 141). Lack of investment banks in Kazakhstan was one of the reasons

for the lack of progress in the stock market (ibid). By the third quarter of 1998,

Kazakhstan privatised less than 5 percent of the country's large enterprises and 11

percent of its medium-sized enterprises (ibid). Nearly 85 percent of small enterprises

were privatised in Kazakhstan by this time (ibid).

The Kazakh National Securities Commission drafted another programme for

the development of the securities market for the period 1999-2000. It revaluated the

role of portfolio investments, attempted to create conditions favourable to the demand

and supply of securities, and tried to develop an oversight system. The programme

also dealt with tax incentives for securities issuers.

The government introduced a number of laws creating conditions for

sustainable development of business and a strong entrepreneurs' class. Small

businesses were encouraged mainly to tackle unemployment, increasing labour

activity and to boost the consumption market by providing a wide range of goods and

services (Government of Republic of Kazakhstan, 2007a: 264). The laws 'on private

entrepreneurship' and "on state support of private entrepreneurship" introduced in

1997 focussed on state support to small businesses and enterprises, whose total value

of assets did not "exceed 60 fold specified rate on average" (ibid).

On 31 December 1998, the government approved the 'state programme of

support and development of small business' for the year 1999-2000. The number of

small businesses in the Republic increased. By the end of 2000, the number-Df small

businesses increased by 500,000 and small business employees grew to 2 million

(ibid: 264-265). The shares of small businesses in gross domestic product grew by 15

percent (ibid: 265). In 2000, small businesses produced goods and services worth

532.6 billion tenge, two times greater than 1999 (ibid). By 1 January 2001, 388.2

thousand small businesses (legal entities and individuals) were registered in the

country (ibid).

182

According to the National Bank of Kazakhstan, the second level banks granted

credits to small businesses worth 63.6 billion tenge until I December 2000

(Government of Republic of Kazakhstan, 2007a: 265). The credit shares in overall

credit given to small businesses constituted 24.6 percent (ibid). According to the

President's Edict on 6 March 1997, 65205 units were given to land holdings and sold

with the condition that the payment term could be delayed (ibid). Almaty city and

South Kazakhstan Oblast recorded the highest figure (ibid). The 'Programme on small

business support and development' for 2001-2002 was adopted to develop the

following.: (ibid: 265-266)

• Developing entrepreneurship m coordination with effective institutional

transformations,

• Improving and developing infrastructure and financial infrastructure,

• Providing information and scientific-methodological provision and business

staff training.

The final stage of the third phase of privatisation process of Kazakhstan also

included the privatisation of the pension system. Since 1998, workers had the choice

of investing their pension money. The system relied largely on employer contributions

in the state pension fund or in private funds. Institutionally the new fund system

included accumulative pension funds, asset management companies, custodian banks

and state regulatory bodies. There were two types of pension funds in Kazakhstan -

private (PPF) and state (SPF) funds. These were all closed Joint Stock Companies.

PPFs were allowed to organise as investment funds, accepting clients regardless of

their workplace or as corporate PPFs serving only the employees of shareholder

companies. Prime Minister Tokayev in 1998-1999 announced that fifteen private

funds and a state accumulative pension fund gained about $400 million as investments

(Olcott 2002: 141). The accumulative pension fund system (APFS) helped to support

state borrowing. However, it failed to encourage effective saving. There were few

problems with the pension fund as the guidelines for the use of pension funds were

confusing (ibid: 142). In addition, the decision by the Ministry of Labour and Welfare

to use pension funds to modernise the Atyrau-Samara pipeline in 2000 was criticised

(ibid). This led to the change in the decision and the National Security Commission

announced that pension funds would not be invested in industry. According to law, at

183

least 50 percent of a fund be invested in state securities, and by 2001, 96 percent of

the funds were in state securities (ibid).

The common people did not like the new pension scheme. There were reports

that some medium-sized and even small enterprises with no official connections faced

problem in getting capital and the required protection. Corruption was another

impediment and deterred people from joining the private sector. According to a

survey by a high-level commission on corruption, 60 percent of the 250 managers of

small to medium-sized fitn:J.s surveyed admitted to having encountered extortion and

bribery (Olcott 2002: 142). According to a study by Karavan in 1994, 64.5 percent

admitted the role of mafia in influencing the government, and more than 60 percent

believed that the mafia "either completely controls business or does so to a

considerable extent (21.0 percent and 39.1 percent, respectively)" (ibid). Pension

reforms could not gain popularity and only 18 percent of the Kazakh work force

joined the private pension funds even after a year the pension reform was introduced

(ibid).

Privatization of the natural resources based industries remained a problem. For

example, in February 1998, the privatisation of Kazakhstan's oil sector was

suspended because the government could not find a suitable strategic partner for the

national company, primarily because of transportation problem (Olcott 2002: 142).

Nazarbayev in December 1998 announced that government would retain railways,

power transmission lines, and oil and gas pipelines. The government also suspended

the sale of its shares in the two state owned gas companies - Aktiubemunaigaz and

Mangistaumunaigaz.

The total earnings from privatisation (local and national budgets) in 1999

amounted to only 35.8 billion tenge (approximately $250 million) while the target

was 61.2 billion tenge (approximately $430 million) (ibid: 143). This included the

sale of 16.7 percent stake of the Halyk Bank (the savings bank), a blue chip company

was sold to Asia-Invest, a local financial sector consortium (ibid). The cost was 1.38

billion tenge (US $10 million) and it is said President Nazarbayev' s family was

involved in the deal (ibid).

184

By early 2000, there were 100,125 private enterprises that constituted 81.5

percent of all registered enterprises (Government of Republic of Kazakhstan, 2007a:

256). Out of these, 1,631 of them were large enterprises (ibid). Over 70 percent of

income on Value Added Tax (VAT) came from private enterprises (ibid).

Prime Minister Tokayev in 2000 announced that privatisation process would

be completed by 2000. But according to Finance Minister Mazhit Y esenbayev only 31

of the 215 companies listed for sale in 2000 were practically ready for privatisation

(Olcott 2002: 143). As ofby 2001, a larg~ number of companies were still not ready

for privatisation like Kazakhoil, KazTransOil (pipeline), Kazakhstan Electricity Grid

Operating Company (KEGOC), Kazakhstan Temir Zholy (railways) and

Kazaeronavigatsia (ibid). Even Mangistaumunaigaz and Kazakhtelekom, the only two

of the ten blue chip companies that were actually fit for privatisation by 2000 were

also not privatised (ibid). Earlier many companies were "stripped of their assets"

before sale (ibid). Even though the State Oil Company, Kazakhoil, remained a

powerful economic force, in 1998 the government sold 14.28 percent of its stake in

the Offshore Kazakhstan International Operating Company (OKIOC) responsible to

develop Kazakhstan's sector of the northern Caspian Sea (ibid). OKIOC is at present

known as AgipKCO.

The Blue Chip Government Programme for Privatisation of 2000 was

extended until 2001. The programme included sale of state shares of the following

companies- Aktiubemunaigaz and Mangistaumunaigaz oil companies, Kazakhmys

(Kazakhstan's largest copper producer), Kazakhstan Chromium, Kazakhstan Zinc, the

Ust-Kamenogosk titanium and magnesium enterprise, the Sokolov-Sarbai mining

corporation, the Kazakhstan Aluminum Company, and Kazakhtelekom and Halyk

Bank (Olcott 2002: 143).

The privatisation of small and medium-sized enterprises was almost completed

by 2005. However, the process of privatisation was criticised as it was

"semitransparent" (Olcott 2005: 87). Privatisation drive in Kazakhstan established a

private sector base in the economy encouraging small and medium sized businesses

and export oriented industries (Government of Republic of Kazakhstan, 2007a: 256).

It boosted foreign investments in Kazakhstan.

185

INDUSTRIAL POLICIES TO DIVERSIFY KAZAKH ECONOMY

Strategy of Innovative Industrial Development of the Republic Kazakhstan for 2003-2015

Kazakhstan after the initial years of independence was keen to diversify its economy.

It wanted to reduce its dependence on natural resource based industries. To keep pace

with the global world and participate in the international market it also had to

modernize its economy. The Decree of the President of the Republic ofKazakhstan of

17 May 2003 to deal with these issues approved the 'Strategy of Innovative Industrial

development of the Republic of Kazakhstan for 2003-2015'.

The Ministry of Economy and Budget Planning and the Ministries of Industry

and Trade, Education and Science, Transportation and Communications, Labour and

Social Protection of the Population, Energy and Mineral Resources, Finances of the

Republic of Kazakhstan, Agency for Regulation of Natural Monopolies and

Protection of Competition, and the National Bank jointly framed the Strategy.

The objective of the Strategy of Innovative Industrial Development was to lay

the framework of the economic policies of the Republic of Kazakhstan until 2015. Its

aim was "to achieve stable development" of Kazakhstan through "economic

diversification and shifting from extraction to processing" (Government of Republic

of Kazakhstan, 2007b ). The main objectives of the Strategy of Innovative Industrial

Development of the Republic of Kazakhstan are- (ibid)

• Maintaining the average annual growth rate of processing industries within 8-

8.4 percent, at least 3 times gains in labour productivity by 2015 against 2000

and 2-fold reduction of power-intensity of GDP;

• Increasing productivity of fixed assets of processing enterprises;

• Cultivating business-friendly environment; establishing institutional structures

to stimulate private sector, encourage competitiveness and strive for greater

value added;

• Introducing incentives to establish science-intensive high-tech export-oriented

enterprises;

• Diversifying export potential of the country in favour of products and services

with high value added; transition to world standards of quality;

186

• Enhancing integration into the regional and global economy with participation

in global innovation processes.

The 'Strategy of Innovative Industrial Development of the Republic of

Kazakhstan' defined three stages to achieve its targets- (Embassy of the Republic of

Kazakhstan in Israel, 2009b)

a) 2003-2005: The first stage was to introduce legislative changes and sectoral

programmes of development. It specified the amount allocated to science,

education, and training of specialists. Also, this phase focussed pn creating

institutes of development, which would assist the state to ensure its

participation in realization of the program.

b) 2006-2010: The Second stage examined the private sector initiatives and

search for investors. This stage was to identify participants for realization of

select projects, manpower training, construction and reconstruction of major

and subsidiary facilities.

c) 2011-2015: The third stage was to complete the whole complex of

organizational measures and accelerate works to enhance competitiveness of

products manufactured by processing enterprises. The Programme aimed to

change the economic structure and stimulate export diversification.

The Strategy was formulated to bring about social development, to introduce

qualitative change in the economy and to ensure "sustainable growth based on

efficient use of human, production and natural capital" (Government of Republic of

Kazakhstan, 2007b ).

The total cost of the Programme for 2005-2015 was predicted to be KZT

(Kazakhstan Tenge) 139795.13 million (ibid). Out of which, KZT 77272.3 million

was to be allocated out of the central budget and KZT 2112 million from the local

budgets (ibid). The private local and foreign investments were to contribute KZT

60410.83 million (ibid).

It was predicted that this industrial policy would help Kazakhstan to achieve

economic growth of not less than 8.8-9.2 percent a year (ibid). The national GDP will

be 3.5-3.8 times more by 2015 compared to 2000 figures (ibid). The growth of labour

187

productivity will be least 3 times more by 2015 compared to 2000 level (ibid). The

policy will help to reduce GDP energy-intensity twice (ibid).

The implementation of the Strategy will enable- (Embassy of the Republic of

Kazakhstan in Israel, 2009b)

• Increase by 2015 the share of finished goods production in the GDP from 46.5

percent to 50-52 percent;

• Increase the share of R&D-related activities in the GDP from 0.9 percent in

2000 to 1.5-1.7 percent in 2015;

• Slow reduction of the share of processing industries in the GDP from 13.3

percent in 2000 to 12-12.6 percent in 2015 (but for the industrial policy, this

indicator would make up 10.9 percent in 2015).

However, without implementing the Strategy, the share of value added to

mining industries in the industrial production sector could reach to 55-56 percent in

2015, including 50-51 percent in oil sector against 25.6 percent in 2000 (Government

of Republic of Kazakhstan, 2007b ). After taking into account the policies outlined in

the Strategy, the mining industries will only make up 46-47 percent by 2015 (ibid). At

the same time, the share of high-tech industries will grow from 0.1 percent of the

GDP in 2000 to 1-1.4 percent in 2015 (ibid). There will be change in quality in the

structure of value added in processing industries. The share of metallurgy and metal

working will drop from 40.1 percent of the total value added in processing industries

to 27-28 percent by 2015 and the share of agro-products processing will grow from

38.1 percent to 45-46 percent by 2015 (ibid). The percentage share of

science-intensive and high-tech products will constitute 9-11 percent by 2015 as

compared to 0.6 percent in 2000 (ibid).

Kazakhstan economy faced various problems in achieving these objectives in

the globalised world like- (Embassy of the Republic ofKazakhstan in Israel, 2009b)

• Predominance of extraction industries,

• Insignificant integration into the world economy,

• Weak inter-branch and inter-regional economic integration within the country,

• Low consumer demand for products and services at the domestic market

(small economy),

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• Underdeveloped production and social infrastructure,

• General technical and technological backwardness of enterprises,

• Absence of effective relations between science and production,

• Low spending on R&D,

• Incompatibility of management with objectives of economic adaptation to

globalization and transition to the economy of service and technology.

The government took steps to revive the economy and enable it to face

competition in the global market. The Bank for Development; ad-hoc institutes of

development, such as Kazakhstan Investment Fund, Corporation of Export Insurance,

and Innovation Fund were established to stimulate effective implementation of the

Strategy.

Bank for Kazakhstan Development

Bank for Kazakhstan Development was established on 25 April 2001. The Bank was

based on the Presidential Decree of 28 December 2000- "On the Bank of

Development of Kazakhstan". The Bank was to assist Kazakhstan in achieving

sustainable development of the national economy, especially its real sector. The main

goal of the Bank was "enhancement of the state investment-related activities

efficiency, development of production infrastructure and processing industries,

encouragement of internal and foreign investments into the national economy"

(Government ofRepublic ofKazakhstan, 2007b).

As of 1 April 2005, the Bank for Kazakhstan Development approved financing

of twenty seven investment projects amounting US $780.3 million (ibid). The share of

the Bank reached to US $349 million (ibid). One of the noteworthy projects funded

completely by the Bank in 2005 was a project worth US $4 million (ibid).

Investment Fund of Kazakhstan JSC

Investment Fund of Kazakhstan JSC (IFK) was established as per government

regulation of30 May 2003.

IFK's primary focus was to attract investments in 'promising enterprises' to

achieve the targets of the Strategy of Innovative Industrial Development of the

189

Republic of Kazakhstan for 2003-2015. IFK was introduced mainly to cater to the

needs of the underdeveloped equity market, low capitalization of domestic companies,

and lack of adequate mechanisms to ensure inflow of investments into processing

industries.

IFK looked after financing of investment projects targeted at extension,

reconstruction, technical up gradation of already operating enterprises and

establishment of new enterprises to manufacture goods and render services. As of

1 April 2005, the Investment Fund approved eighteen projects worth US $935.4

million; the share of the Bank was worth US $80.3 million (Embassy of the Republic

of Kazakhstan in Israel, 2009b ).

National Innovation Fund JSC

National Innovation Fund JSC (NIF) was established according to the governmental - ··-..... ·

regulation of 30 May 2003. NIF's aimed at promoting innovation-related activities

including supporting development of technology-intensive enterprises. NIF supported

programmes for the creation and development of high-tech sectors - IT, electronics,

biotechnology, etc, which is termed as 'venture function'. NIF aimed at resolving

problems like absence of efficient market mechanisms to adopt innovations.

As of 1 April 2005, the Innovation Fund approved fifty one projects

amounting to US $130.4 million (Government of Republic of Kazakhstan, 2007b).

The Fund's share was worth US $100.9 million (ibid). Among the projects sanctioned

thirty projects were approved in 2005 worth US $11.9 million (ibid). The Fund's

share was worth US $8.1 million (ibid).

As of 1 April 2005, the aggregate chartered capital of the Institutes of

development amounted to KZT 111 billion (US $847 million) (ibid). In 2005, twenty

nine projects were approved amounting to US $525.2 million (ibid). The share of

local institutes of development alone was US $21.5 million (ibid).

Industrial Clusters

Kazakhstan initiated the cluster approach for the development of the national

economy, particularly the industrial sector. Before the process of clusterization started

190

in the Republic, the Kazakh government announced the priority areas for development

on 8 May 2003. It included sectors linked to oil extraction (machines and equipment,

chemical products, transport and construction), high-value-added .sectors (space,

nuclear and information technology), and agro-food sector. In July 2004, the

government introduced the policy of 'Clusterization' to encourage industrial

organisation in which "geographically proximate firms and associate institutions are

linked" (Wandel and Kozbagarova 2009: 23). The Clusterization project of non­

extraction sectors of the economy was initiated to develop Kazakhstan's non-energy

sector of the economy (Government of Republic of Kazakhstan, 2007b ). The main

purpose of the programme is to raise competitiveness of non-extraction sectors of

Kazakh economy and promote economic development of various regions and of the

country in general.

The cluster approach created zones of "certain group of geographically localized interconnected companies, .. suppliers of equipment, component parts, specialized services, infrastructure, research facilities, higher education facilities and other associated institutions needed to achieve a certain economic effect and amplifying competitive advantages of certain companies, the cluster itself and the country in general" (ibid).

To develop the project, the Kazakh government took help of other countries.

Kazakhstan invited J.E. Austin Associates Inc, American Consulting Company and

Professor Michael Porter, who is manager of Strategy and Competitiveness Institute

of Harvard School for cluster-based development of Kazakhstan (Tumabayev 2007:

6). The company studied about 150 sectors to locate clusters where Kazakhstan has

competitive advantages. It chose twenty three perspective sectors for cluster-base

development in Kazakhstan (ibid). Due to the financial and management constraints,

out of these twenty three sectors, the Kazakh government introduced only a limited

number of sectors for clusters based projects depending on their ability to stimulate

economic development. A board of experts including representatives from

government bodies, business associations, universities and research institutes finally

identified the seven sectors for 'clusterisation', which are metallurgy, transport

logistic, textile, construction materials, food industry, tourism, oil and gas machinery.

Some of these sectors have made certain progress, while other sectors still require

assistance to improve their prospects (Government of Republic of Kazakhstan,

2007b).

191

Twelve projects have been undertaken under these seven sectors identified for

clusterization. They are- (Tumabayev 2007: 6)

a) Metallurgy- Karaganda oblast (industrial zone);

b) Transport logistics - Green transport way "China-Kazakhstan-Europe" and

new transport logistic centre in Almaty;

c) Textile- South-Kazakhstan oblast (cotton sector);

d) Construction materials- Astana city (industrial zone), Kyzylorda oblast (glass

production), Almaty oblast;

e) Food industry- vegetables producing cluster (South-Kazakhstan oblast), milk

production (Kostanai oblast) and grain cluster (North and centre of

Kazakhstan);

f) Tourism- Almaty and Almaty oblast;

g) Oil and gas machinery- West-Kazakhstan.

Metallurgy

Developed mining and smelting sector is the backbone of the Kazakh economy,

which plays a major role in the growth of Kazakh economy today. Karaganda oblast

is the home for majority of ferrous and non-ferrous metallurgy plants in the country.

The Mittal Steel Temirtau and Kazahmys Corporation are the main companies

engaged in this sector, which include more than 300 small and medium enterprises for

delivering equipment and material, and more than thirty companies of machinery and

metallurgy specialized on metal-working (Tumabayev 2007: 6).

According to Michael Porter's 'theory of clusters' the most competitive

companies in the international market are concentrated in one region (ibid). Hence,

Karaganda oblast is the most suitable region for developing cluster such as

metallurgy. Presence of many-proGessing companies in the region facilitates better

communication and competition between them.

Transport logistics

Improved transport system is the key to the development of the Kazakh economy.

Huge territory, small density of population, scattered location of mineral resources

and mining, low level of processing resources and dependence on export of raw

materials, etc. are some features that calls for better transport logistics.

192

The aim of dev"eloping transport logistic cluster is to improve the transport

system. As part of the first stage of transport logistic cluster development, government

decided to implement two projects: Green transport way "China-Kazakhstan-Europe"

(which is called NELTI) and new transport logistic centre in Almaty. The new

transport logistic centre at Almaty is aimed to address the problem with utilized

capacity (Tumabayev 2007: 7). NELTI project is developing the transit potential of

Kazakhstan and constructing car roads at par with international standards (ibid).

The World Bank approved US $2.125 billion loan on 6 May 2009 for

the 'Kazakhstan South-West Road Project' to help upgrade the road linking China to

Russia and Western Europe through Kazakhstan (Embassy of the Republic of

Kazakhstan in India, 2009d). The up-gradation of this trade route would bring

significant economic benefits to Kazakhstan, as well as to other Central Asian

countries. Since July 1992, the World Bank has provided thirty three loans to

Kazakhstan for the total amount of more than US $4.2 billion (ibid). However,

the 'Kazakhstan South-West Road Project' alone constitutes US $2.125 billion ofthe

total World Bank loan to Kazakhstan (ibid).

The 1,062 km long road between Shymkent and Aktobe/Kyzylorda Oblast

border would be revamped with the help of World Bank. This road is a part of the US

$7.5 billion International Transit Corridor Development Programme of the

Government of Kazakhstan to upgrade approximately 2,800 km of the Central Asia

Regional Economic Cooperation (CAREC) corridors within Kazakhstan linking

China (at Khorgos) to Russia (at Zhaisan) (ibid).

Local economy would also be benefited as the loan would create about 35,000

jobs (Embassy of the Republic of Kazakhstan in India, 2009d). Benefits of the road

are many. The World bank Country Manager-in-Kazakhstan, Sergei Shatalov, said­

"the road will improve access to markets for the local communities living along the

Corridor, and stands to benefit some three million people living in the neighbouring

provinces" (ibid). The work on the project started in 2009 and is expected to be

completed in about four years. The Committee for Roads of the Ministry of Transport

and Communication of Kazakhstan is the main agency entrusted to overview the

project.

193

Textile industry

The Kazakhstan's Textile and clothing sectors are in a very bad shape. The textile

cluster aims to develop effective sub-sectors, which are more competitive. Kazakhstan

today is exporting surplus cotton as cotton production has increased. However, there

are some cloth-making companies with potential to produce goods for domestic and

international markets. Kazakhstan needs to increase production of yam and fabric to

decrease the gap between producing cotton and making clothes. The yam and fabric

sector of textile industry takes almost 80 percent of added cost price (Tumabayev

2007: 7). Competitive textile sector will help to process cotton produced in

Kazakhstan and increase profits of companies by producing clothes. The government

initially decided to develop Southern part of Kazakhstan, where cotton is grown.

'Ontustik Special Economic Zone' is created by Presidential Decree of

July 2005. This is one of the first initiatives to create cotton-textile cluster in South

Kazakhstan Oblast. Ontustik SEZ is established to attract investors to textile industry,

which is expected to attract nearly US $500 million of private investments (Embassy

ofthe Republic ofKazakhstan in India, 2009b).

Ontustik SEZ is located near Shymkent city, which is the administrative centre

of South Kazakhstan oblast. 200 hectares of land are allocated to Ontustik SEZ (ibid).

The zone is located closely to transportation and energy infrastructure. Other benefits

that the location has are preferential economic conditions, access to source of raw

materials, markets, human resources, infrastructure, low level of costs, stable

investment climate, etc (ibid).

The SEZ aims to build more than fifteen new spinning, weaving and garments

production units (ibid). It is also expected to process up to 100 thousand tons of cotton

in a year and create more than five thousand workplaces in region (ibid).

The SEZ is expected to develop the domestic consumer textile market and also

export-oriented manufactures. The main activities of SEZ enterprises are as follows­

(Ontustyk 2008)

• Production of cotton threads and all kinds of yam,

• Weaving manufacture,

• Finishing and dyeing manufacture,

194

• Production of finished textile items,

• Production ofknitted goods and hosiery,

• Production ofknitted pullovers, cardigans and this and the like goods,

• Production of uniforms,

• Production of outerwear,

• Production ofunderwear,

• Production of other garment and accessories,

• Production of silk fabrics and products on its basis,

• Production of non-woven textile materials and products from them,

• Production of carpets, carpet products and tapestries,

• Production of cotton cellulose and its derivatives,

• Production of a high-quality paper from cotton raw material,

• Manufacture of products from leather,

• And also the activity on forming SEZ companies' infrastructure.

Construction materials

The pace of growth of construction industry was impressive during the period

2002-2006 (Tumabayev 2007: 7). The change of capital from Almaty to Astana

increased construction activities in the Republic. The government in 2007 established

special long-term programmes for developing enterprises producing construction

materials. Special industrial zones were established in Astana city, Almaty and

Kyzylorda oblasts.

Food industry

The food industry market of Kazakhstan accounts for approximately US $2.5 billion

(Tumabayev 2007: 7). The sector has great potential for growth in future. KazaKhstan

wants the products from this cluster to reach international markets. The main markets

for Kazakh food producing industry are China, Russia and CARs.

Geographically, the food producing companies are located in close proximity

and hence it is selected for cluster-based development. The three potential sub-sectors

of the food industry are: grain-processing, fruit and vegetable producing, and milk

producing. The government introduced modernisation of equipment and increase the

195

volume of food production. The main purpose of the food industry cluster is to

increase export of food produced in the country.

Tourism

The pristine natural beauty of Kazakhstan makes it an attractive tourist destination. At

present, tourism sector is a lucrative sector in Kazakhstan. The Republic has declared

tourism as a national economic priority sector, especially to reduce dependence on

income from oil and gas and create more jobs (Embassy of the Republic of

Kazakhstan in India, 2009e). In June 2001, the Law on Tourist Activity was adopted

to promote tourism, which defined the legal, economic, social and organizational

foundations of tourist activities as one of the branches of economy. The National

Tourism Development Plan for 2007-2011 calls for the industry to provide new jobs,

generate stable growth of state revenues and promote a positive image of Kazakhstan

(ibid).

According to a report submitted to the UN World Tourism Organization

(UNWTO) in 2009, Kazakhstan plans to construct three large-scale tourism centres

involving foreign investments - in Borovoye resort zone (near Astana), at the shores

of Kapchagai Lake (Almaty) and at the shores of the Caspian Sea (Aktau) (Embassy

of the Republic of Kazakhstan in India, 2009e). The project is expected to be

completed within 5-7 years and requires huge amount of investments (ibid).

Kazakhstan mainly wants to attract tourists from the other CARs, CIS

countries and Europe. Asia accounts for only about 250,000 visitors a year to

Kazakhstan (ibid). The Republic has "simplified visa arrangements" with Malaysia,

Australia, New Zealand, Singapore and Japan. The country is also preparing for the

2011 Asian Winter games. Air Astana, the national airline of Kazakhstan is planning

to start an in-house tour Company, Air Astana Holidays, to facilitate tourism (ibid).

Oil and gas machinery

Kazakhstan is rich in oil and gas resources. It is one of the most energy rich countries

in the CARs. The development of Caspian Sea resources is one of the biggest projects

in Kazakhstan. The government approved long-term programmes for developing the

Kazakh part of the Caspian Sea. It aims to construct new ports, pipelines, plants, etc

196

in the Republic. Building of these infrastructures would naturally increase the demand

for modem equipment and machinery for oil and gas mining, transportation and

processing. As a result, oil and gas machinery cluster seems to be very attractive.

At the Kazakh-Norwegian business forum held in Astana on 5 February 2010,

Kazakhstan invited Norwegian companies to participate in the development of

Kazakh oil and gas engineering clusters, especially for offshore operations

(Kazinform 201 0).

The Kazakh government simultaneously plans to create cotton, wine and fish

clusters. All these initiatives indicate Kazakhstan's efforts to join the club of fifty best

developed countries of the world. These projects reflect Kazakhstan's target to double

its GDP by 2010 and to increase it 3.5 times by 2015, as envisioned by President

Nazarbayev in 2002 (Government ofRepublic of Kazakhstan, 2007b).

Programme of 30 Corporate Leaders and State Holdings

Nazarbayev in 2006 announced 'The Strategy for Kazakhstan to Become One of the

Top fifty Most Competitive Countries in the World' and the government formulated

the 'Programme of 30 Corporate Leaders'. The objective was to create '30 national

champions', which would play a pivotal role in increasing competitiveness (Wandel

and Kozbagarova 2009: 23).

In addition to the earlier industrial policies, the government introduced two

more industrial policies- generating 'corporate leaders' in several branches of the

economy and creating 'State Holding Companies'. The government through the

'30 corporate leaders' programme was to identify and finance 30 specific

corporations, which were to work on particular government investment projects.

Four National Holding Companies - Samruk (JSC Kazakhstan Holding for

Management of State Assets), Kazyna (JSC National Fund for Sustainable Devel­

opment), Samgau (JSC National Scientific and Technological Holding), and

KazAgro (JSC National Holding) were established to stimulate investment in

infrastructure and other priority sectors (ibid: 25). These four companies united a

number of "state shareholdings in companies and state development agencies"

(ibid).

197

Of the four National Holding Companies, Samruk is the largest. It holds

state-owned stakes in nineteen enterprises (Wandel and Kozbagarova 2009: 25).

Kazyna, a state-owned managing company is the single shareholder of eight

national development institutions. KazAgro looks after the development of the

agro-food sector, a sector crucial for national food security. The government wants

to develop the agro-food sector primarily for two reasons- to become relatively self

reliant in foodstuffs and the sector has great potential to compete in the world

market (ibid). Samgau was established to develop research, development and high­

technology sectors. It combines thirteen institutions operating in the areas of

information and communications, science and technology, broadcasting, postal,

and financial services. The government is promoting technology, which is crucial

for economic development today.

The state holdings also aimed at increasing the efficiency of corporate

governance and Improve coordination between state-owned enterprises and

agencies. These holdings are to operate as 'active shareholders' in their

subsidiaries, participating in strategic decision making without interfering in the

day to day functions. Financing is partly from the state budget and the remaining

from their own and other resources. There was emphasis on professional

management and commercial orientation of the state holdings (Wandel and

Kozbagarova 2009: 25). This also included privatization or outsourcing of

state-owned assets. Kazyna, for example, wants to privatize all of its development

agencies by 2012 (ibid). Similarly, Samruk also plans to sell some of its assets

through IPOs (ibid).

It is sti11 not clear as to how far the Kazakh government is willing to

privatise the State controlled enterprises. Critics, however, argue that the state

holdings "might end up duplicating the tasks of government ministries" (ibid).

Problems might also come up if the "overa11 development task conflicts with

sector-specific development tasks" (ibid). State holdings have to make profits and

implement state economic policy. Hence, doubts remain whether there wi11 exist

genuine separation of political and commercial interests. The Mercatus Policy

Series, in July 2009 indicated that until now the national holdings have so far

failed to achieve their goals (ibid). For example, Samruk is facing problems in

198

getting purchasers for its non-profile stakes, and Kazyna is not able to stimulate

investment via second-level banks into the economy (ibid).

INDUSTRIAL DEVELOPMENT: AN OVERVIEW

The Kazakh government's efforts to reform the industrial sector gradually began to

show positive results. The industrial production rate in 2005 increased by 1.9 times as

compared to 1995 (Agency of Statistics of the Republic of Kazakhstan, 2006: 58).

The annual product growth was 6.6 percent in 2005 (ibid). The increase in figures was

mainly because of full or partial rehabilitation of ferrous and non-ferrous metals;

construction materials; textile and ready-made garments; food products; electricity

and thermal power engineering. The greater international demand for oil and gas led

to the development of this sector in Kazakhstan also, increasing the industrial

production figures in the Republic.

Some of the major industries of Kazakhstan m 2005 reflected a positive

growth. As compared to 1990 and 1995 levels, production of natural gas in 2005 grew

at 4 and 4.6 times respectively; crude oil and oil-well gas production increased by

2.4 and 3 times respectively; in machine-building industry by 38.3 percent and

2.5 times respectively; in metallurgical industry and fabricated metal products by

7.4 percent and by 1.6 times respectively (Agency of Statistics of the Republic of

Kazakhstan, 2006: 58).

High development rates were recorded in rubber and plastic goods

manufacture; other non-metal mineral products; machinery and equipment, vehicles

after 2000. In 2005 (based on the operative data) production of industrial companies

of Kazakhstan at current prices amounted to 5124.1 billion tenge, reflecting

4.6 percent growth in real terms as compared to 2004 (ibid).

There was an increase in share of production in 2005 as compared to 2000 in

the following areas- crude oil and oil-well gas production (from 38-49.6 percent);

services provision in the field of oil and gas production from (from 0.8-2.5 percent);

metal ore production (from 3-3.9 percent); production of other non-metal mineral

commodities (from 0.8-2.1 percent) (ibid: 59). The share of machine building,

199

finished metal products, pulp and paper industry also increased in the total industrial

production.

The following table indicates the main indicators of industry of selected years:

1990, 1995,2000 and 2005.

Table- 4.1

Main Economic Indicators of Industry

1990 1995 2000 2005

Share of industrial value added in the 20.5 23.5 33.2 30.2 republican GDP, percentage Volume of industrial production, million 70 696310 1798260 5124131 tenge Volume indices of industrial production:

as% of previous year 99.6 90.2 115.5 104.6 as% of1990 100.0 46.2 54.9 87.0

Number of main activity personnel, 1358.8 1025.5 653.8 645.5 thousand people ., ··-.

as % of previous year -- 91.5 97.8 101.4 as% of1990 100.0 75.5 48.1 44.9

Average monthly wages and salaries of 296 7792 20647 40905 industrial main activity personnel, tenge

as % of average republican 111.7 162.8 143.6 120.1 wages and salaries level

Profitability (un-profitableness rate of 17.3 15.7 26.5 54.5 industry income or loss from main activity, as % of total cost of products sold) Fixed capital investment of industrial 4080 84487 385940 754172 investor enterprises, million tenge

as % of previous year -- -- 161.7 103.4 ..

Source: Agency of statiStiCS of the Repubhc of Kazakhstan (2006), Kazakhstan for Years of Independence: Informational and analytical compendium, Almaty, Kazakhstan, pp. 58-59.

The above table shows that the share of industrial production in total GDP

increased in 2000 from the 1990 figure and decreased in 2005. Volume of industrial

production in terms of tenge increased steeply but in terms of quantity dropped

sharply in 1995 and then gradually increased in 2000 and 2005. Kazakhstan could not

achieve the quantity of production of 1990 level in 2005. The number of personnel

working in industry also decreased gradually in 1995, 2000 and 2005 from 1990 level.

However, average monthly wages and salaries, profitability and fixed capital

investment in industry increased sharply in these years.

200

The table below and the diagram describe sectoral composition of industrial

growth from 2000 to 2005.

Table- 4.2

Industrial Growth of Kazakhstan (2000-2005) (as% of previous year)

2000 2001 2002 2003

Mining industry 121 114 115.9 110.2

Manufacturing industry 117.4 115 108.1 107.9

Production and distribution of 105.8 108.6 101.9 110.3 electricity, gas and water Industry as a whole 115.5 113.8 110.5 109.1

2004 2005

113.4 103.2

109.2 106

102 102.2

110.4 104.6

Source: Lanssa S1dorova (2006), "Economy", Central Eurasia 2005: Analytical Annual, Sweden:

110

105

100

CA&CC Press, p. 178.

2000

Figure- 4.1

Industrial Growth of Kazakhstan (2000-2005) (as %of previous year)

2001 2002 2003 2004

llllll!li Mining industry

-Manufacturing industry

Production and distribution of electricity. gas ,)nd water

-+-Industry JS J whole

2005

rJ

N 0 rl

The above table and diagram point out that growth rate of mining sector,

manufacturing sector; and electricity, gas and water decreased from the 2000 level

until 2005 although showing positive growth. The growth rate of the industry as a

whole also showed a downward trend.

201

In the period during January-December 2005, industrial production in

Kazakhstan was worth 5,124.1 billion tenge (KZT) or 104.6 percent of the amount in

2004 (Sidorova 2006: 178). Higher domestic and international demand led to the

increase in production in mining and manufacturing industries by 3.2 percent and

6 percent respectively (ibid). The production and distribution of electricity, gas and

water rose by 2.2 percent (ibid).

The rate of industrial development declined in 2005. During 2001-2004, the

average annual growth rate in industry was 10.4 percent, which declined to

4.6 percent in 2005 (2.3 times lower) (ibid). The decline was primarily because of

decline in output in some mining and manufacturing industries. In the chemical

industry, the volume of production was 95.3 percent in January-December 2005 as

compared to the same period in 2004 (ibid). The metallurgy and finished metal

products constituted 93.7 percent in 2005 as compared to 2004 (ibid). The production

of oil, coal and ore also declined.

Natural resources are the backbone of Kazakh industry and economy.

Over-dependence on raw materials makes it vulnerable to changes in external factors

like demand for raw materials and their price level. In order to reduce its dependence

on raw materials, the government emphasised on developing the manufacturing

sector. Hence, the government introduced the 'Strategy of industrial and innovative

development'. According to the Statistical Agency of the Republic of Kazakhstan, the

growth of industrial production in 2005 accounted for 6 percent over the level in 2004

(Kylbaev 2007: 162). The following industries recorded the highest growth- (ibid)

);:- Paper and pulp industry and in publications (by 28.8 percent);

);:- Other non-metallic mineral products (by 24.8 percent);

);:- Machine-building (by 20.1 percent);

);:- The production of petroleum products (by 18.1 percent);

);:- Rubber and plastic goods (by 16.1 percent);

);:- Processing of wood pulp and the production of wood products (by 15.2

percent);

);:- Production of food products, including beverages (by 14.4 percent);

);:- Textile and garment industry (by 9.4 percent);

);:- Tobacco goods (by 5.4 percent).

202

The growth pattern for the period 1999-2005 reflects that the share of

extractive sector increased gradually while share of manufacturing sector decreased

continuously during this period (Kylbaev 2007: 162). The following table shows the

structure of Industrial Production in this period.

Table- 4.3

Structure of Industrial Production (as percent of total)

Sector 1999 2000 2001 2002

Mining (total) 36.1 44.5 44.3 47.9

including: oil and gas 29.1 38 36.1 39.5

Manufacturing (total) 50.6 46.5 46.9 43.3

including: metal, finished 22.4 20.9 18.7 17.7 metal goods

Machine-building 2.2 2.5 3.4 3.1

Production, distribution of 13.3 9 8.8 8.8 electricity, natural gas and water Total industrial output 100 100 100 100

2003 2004 2005

48.4 53.4 58.6

39.6 43.7 49.6

42.9 39.7 35.8

17 16.3 14.2

3.3 3.3 3.4

8.7 6.9 5.6

100 100 100

Source: Erlan Kylbaev (2007), "The Influence of Foreign Trade Pohcy on the DIVersificatiOn of Industry", in Boris Rumer and Lau Sim Yee (eds.) Central Asia and South Caucasus Affairs: 2006, Tokyo: Sasakawa Peace Foundation, p. 163.

The contribution of the mining sector increased gradually since 1999 as shown

in the above table. Nevertheless, oil and gas sector comprised the major part of the

growth in the mining sector. The share of the manufacturing sector in the overall

industrial production declined. However, the share from sectors like machine building

and metallurgy, which constitute the basis of an industrialised economy, reflected an

insignificant figure. This tendency indicates the need to strengthen measures to

develop the manufacturing sector.

-- In-recent years, there was not much change in the sectoral composition of the

industry. Natural resource based industries still prevail. The mining industry in 2005

accounted for 58.6 percent of the industrial production as compared to 44.5 percent in

2000 (Sidorova 2006: 178). The manufacturing industry accounted for 35.8 percent

( 46.5 percent in 2000); and the production and distribution of electricity, gas and

water recorded 5.6 percent (9 percent in 2000) (ibid).

203

Figure- 4.2

Structure of Industries in the Republic of Kazakhstan for 2005

• M,1nuf.1durtng 111dustry, 35 g-;,,

P1 oduc\lon and

ch>lnbl>\lon of

dt:UIIUly, g,1S and w,1tcr, ~.6%

M11l!J1g rndu~try, 53.6v<.

Source: Agency of statistics of the Republic of Kazakhstan (2006), Kazakhstan for Years of independence: informational and analytical compendium, Almaty, Kazakhstan. p. 59.

The above diagram shows the highly dominating nature of the mining sector in

the industrial production in 2005 compared to the manufacturing and other sectors of

industry.

The major challenge before the government is to reduce its dependence on

natural resources. The high world prices of oil, ferrous and non-ferrous metals

facilitated Kazakh economic growth and increased the nominal gross national income.

According to the Ministry of Economy and Budget Planning (MEBP) estimates, the

contribution of the oil and gas sector to GDP growth reached 49.5 percent in 2005 as

compared to 25.4 percent in 2001 (Sidorova 2006: 179). The share of oil and gas

condensate in total exports increased from 36.5 percent in 1999 to 62.5 percent in

2005 (ibid). This clearly indicates Kazakhstan's dependence on international natural

resource markets.

Investment 111 processmg industries remained low. For example, over

50 percent of total fixed capital investment was in the mining and metallurgy sector

(ibid). The share of the mining industry in the total Foreign Direct Investment (FDI)

204

inflow varied from 27 percent to 75 percent in different years (Sidorova 2006: 179).

In 2005, according to the National Bank of Republic of Kazakhstan, FDI inflow in

mining sector was worth $1,766.4 million out of a total of $6,416.4 million (ibid).

About 94 percent of FDI flowing into the mining industry was utilised to produce

crude oil and natural gas (ibid).

Investment, both domestic and foreign, in the processing industries was low.

This caused inadequate capital renewal and an increase in the proportion of worn out

and obsolete equipment. There is decline in labour productivity in many branches of

the economy, especially agriculture (ibid). Moreover, the products of Kazakhstan·s

processing sector are still not competitive enough for foreign markets (ibid).

Kazakhstan· s economy will remain dependent on fuel-energy and extractive

sectors in the near future also. The Kazakh government realises the significance of

"efficient use of these (fuel-energy and extractive) sectors for priority development of

high value added industries directly connected with the mining industries'· (ibid). So

emphasis now is given to modernise and diversify the economy, enhance its

competitiveness, develop the processing sector and high value added industries, and

ensure conditions for accelerated economic growth and for the implementation of new

technologies (ibid).

The table and pie chart below depict the structure of import of Kazakhstan in

2005.

Table- 4.4

Import Structure of the Republic of Kazakhstan in 2005

Volume of total Share in total imports imports

Machinery and equipment US$ 7595 mln. 44%

Metal and related goods US $ 2546 min. 15%

Mineral products US $ 2323 min. 13%

Chemical products US $ 2001 min. 12%

Food products US$ 1274 mln. 7%

Other goods US$ 1612 min. 9%

Source: Erlan Kylbaev (2007). "The Influence of Fore1gn Trade Pohcy on the DJverslficat!On of Industry··. in Boris Rumer and Lau Sim Yee (eds.) Central Asia and South Caucasus Affairs: ]()06. Tokyo: Sasakawa Peace Foundation. p. 164.

205

Figure- 4.3

Import Structure of the Republic of Kazakhstan in 2005

OthL'r good~,

US S 1612 min: )lh11('- ')~,.

Food pmdull). USSl274mln.:

sh~lf('- 7'~v

Chem,c<Jiprodutb; US$2001mln.

sharc- l2v·v

M111C1JI pl()dutts. V USS2323mln:

sh,ll ~·- 1 3'\.

Machmery Jnd equipment;

US S7595 min: sh,He- 44 v,v

The above table and diagram show that machinery and equipment constituted

the dominant share in Kazakhstan's total import structure in 2005. Machinery and

equipment import accounted for nearly half of the total import. Other important areas

of import were metal and related goods, mineral products and chemical products.

The following table and diagram indicate the export structure of Kazakhstan

during 2000 to 2005.

Mineral products

Table- 4.5

Export Dynamics of Kazakhstan (2000-2005) (in min. US$)

2000 2001 2002 2003

4791 5025 5951 8316

Industrial and agricultural products 958 802 805 1260

Other goods 3063 2819 2953 3351

2004 2005

13727 20553

1449 1520

4920 5775

Source: Erlan Kylbaev (2007). "The Influence of Fore1gn Trade Pohcy on the DJvers1ficatwn of Industry--. in Boris Rumer and Lau Sim Yee (eds.) Central Asia and South Caucasus Affairs: 2006. Tokyo: Sasakawa Peace Foundation. p. 169.

206

Figure- 4.4

Export Dynamics of Kazakhstan (2000-2005) (in min. US$)

25000

20553

20000

15000 13727

10000 831G

5000

S'JSl 4791 5025

lt 1£" 1£53 L"' 8 2 5 0

0

:woo 2001 2002 2003 2004 2005

• Mn1crJI produos •lndustn .. d .:Jnd dgri<.ultur;~l products Other goods

The above table and diagram show the increasing tendency in exports of items

like mineral products, industrial and agricultural products, and other goods from 2000

to 2005. But increase in export of mineral products was much higher as compared to

other exportable items.

The table below compares the export structure of Kazakhstan in 1996 and

2005.

Table- 4.6

Export Structure of the Republic of Kazakhstan during 1996 & 2005

1996 2005

Product Thousands Share of Thousands Share of ofDoUars total exports of Dollars total exports

Mineral products 2179297 36.9 20553311 73.8 Metals and metal products 1870279 31.6 4419080 15.9 Food products 718066 12.1 678969 2.4 Products of chemical 547029 9.3 924447 3.3 industry Machines, equipments, 316999 5.4 358723 1.3 transport means Textiles and textile goods 147053 2.5 213882 0.8 Raw leather, furs 62467 1.1 254649 0.9 Construction materials 28206 0.5 8647 0 Other goods 41588 0.7 437337 1.6 Total 5910983.8 100 27849044 100

-Source: Erlan Kylbaev (2007). "The Influence of Fore1gn Trade Policy on the DtversJficatton of Industry". in Boris Rumer and Lau Sim Yee (eds.) Central Asia and South Caucasus Affairs: 2006. Tokyo: Sasakawa Peace Foundation. p. I 70.

207

The share of mineral products in total export was very high in 2005 compared

to 1996 figures. The share of other exportable items decreased in 2005 from the 1996

level. But in monetary value, the receipts of all items increased in 2005 as compared

to 1996, except food products and construction materials.

The following table explains the structure of Foreign Direct Investment in

different sectors in Kazakhstan from 1996 to 2005.

Table- 4.7

Dynamics of the Influx of Foreign Direct Investment in Kazakhstan from 1996 to 2005

Sector 1996 1997 1998 1999 2000 2001 2002 2003 2004

Millions 881 1398 878 1552 2274 3527 2909 3153 6986 of

Extractive Dollars industry Share of 53 66 71 84 82 77 71 68 84

total FDI (%) Millions 534 370 103 169 247 643 832 1001 519

of Manufacturing Dollars industry Share of 60.7 26.5 11.7 10.9 10.9 18.2 28.6 31.7 7.4

total FDI (%)

Other Millions 259 339 252 130 261 387 365 471 788

of sectors

Dollars Millions 1674 2107 1233 1852 2781 4557 4106 4624 8293

Total of Dollars

2005

5077

79

280

4.4

1059

6416

Source: Erlan Kylbaev (2007), "The Influence of Foreign Trade Pohcy on the DIVerstficatJon of Industry", in Boris Rumer and Lau Sim Yee (eds.) Central Asia and South Caucasus Affairs: 2006, Tokyo: Sasakawa Peace Foundation, p. 172.

The above table shows that the amount and share of Foreign Direct Investment

in extractive industries increased sharply from 1996 to 2005. But the amount and

share of FDI in manufacturing industries decreased during the same period, reaching

to only 4.4 percent in 2005 of total FDI. FDI in other sectors grew substantially in this

period.

208

DEVELOPMENT OF MINING AND METALLURGY INDUSTRY

The mining and metallurgy are the main industrial sector in Kazakhstan. Corporations

like Kazmyrysh (Kazzink) OJSC, Kazakhmys (Kazakhcopper) OJSC,

Kazakhaluminum OJSC, transnational company Kazchrome and Ispat-Karmet OJSC

were established in 1996-97. The aim was to combine ore, mining and metallurgy

enterprises to one technological cycle.

As compared to 1996, the production in non-ferrous and ferrous metallurgy

increased up to 115.2 percent and 124.0 percent respectively in 1997 (Government of

Republic of Kazakhstan, 2007a: 287). In 1997, there were few renovations in some

enterprises, which are the part of Kazzink OJSC, Kazakhmys OJSC,

Kazakhaluminum OJSC, transnational company Kazchrome. Creation of

conglomerates, which included energy providing enterprises, reduced the cost of

energy consumption. !spat-International Kharaghandy coalfields, for example was

privatised to provide Kharaghandy 2-Heat-electric generating plant with coal energy

and Ispat-Karmet OJSC with coke coal (ibid).

Copper production complex was established in the eastern part of Kazakhstan,

where the Y ertys copper mine exists. It included Y ertys ore mining and processing

enterprise and Belousov mining department. Kazakhmys Cooperation constructed a

low-grade zinc concentrate refinery.

Similarly in 1999, enterprises that were part of Kazchrome Company also

undertook renovation measures like renewing equipment, developing production of

new types of ferroalloy and producing metal chrome. To stimulate the industrial

export and import substitution, industries producing new types of ferroalloy, alloyed

and stainless steel were developed. Another renovation took place in the Temyrtau

Chemical Metallurgy Plant in October 2000. A renovated ore-thermal furnace was

established to produce carbon ferromanganese. There were few other developments

after independence in the mining and metallurgy sector, for example, in 2000, 800

tonnes of new import substitutes for standard carbon ferromanganese were produced

(Government of Republic of Kazakhstan, 2007a: 288). Once planned production

reached its potential the production of alloy would reach 40 tonnes (ibid). A small

ferroalloy factory, producing ferro-aluminium was established in Y ekybastuz. In

209

August 2000, an ore concentration plant started processing initial manganese. It was

expected to process 600 tonnes of ore (ibid). In June 2000, Maleev mine of Ziriyan

ore mining and processing enterprise introduced production equipment that facilitated

to produce 1.5 million tonnes a year (ibid). Kazakhstan held 'Mining and metallurgy'

exhibition in September 2000. This exhibition was held six times, giving Kazakh

mining sector an international exposure. In 2000, the production from major

non-ferrous and ferrous metallurgical industries increased to 400 billion tonnes (ibid).

It was 29 percent higher than the 1999 level (ibid).

The table below highlights the production of mining and quarrying industries

from 1994 to 2003.

Table- 4.8

Production in Mining and Quarrying Industries (thousand metric tonnes)

r 1994 1995 1996

Hard coal 104625 83355 76831 Lignite 4815 3740 3591 Crude petroleum 18544 18123 21050 Natural gas (million cubic metres) 4488 5916 6524 Iron-bearing ores, Fe content 10521 14902 12975 Manganese-bearing ores, Mn content 295 284 469 Chromium-bearing ores, Cr content 693 799 393 Salt 527 313 230

1997 . . ·. 1998

72647 69773

2473 1715

23409 23819

4283 7948

13133 9336

426 634

593 529

36 191 Source: UN ESCAP (2005b), Umted NatiOns, Economic and Social CommissiOn for Asia and the

Pacific, Statistical Yearbook for Asia & the Pacific: 2004, New York, p. 212.

Table- 4.8 (continuing)

Production in Mining and Quarrying Industries (thousand metric tonnes)

~ar 1999 2000 2001

Hard coal 58378 74872 79135 Lignite 1716 2443 2680 Crude petroleum 26736 30648 36060 Natural gas (million cubic metres) 9946 11542 11610 Iron-bearing ores, Fe content 9617 16157 15886 Manganese-bearing ores, Mn content 944 120 139 Chromium-bearing ores, Cr content 794 860 905 Salt 37 36 274

2002 2003

73730 84717

-- --42068 44523

6018 7172 17675 19365

183 ---- --

174 --Source: UN ESCAP (2005b), Umted Nations, Economic and Social CommiSSIOn for Asia and the

Pacific, Statistical Yearbookfor Asia & the Pacific: 2004, New York, p. 212.

210

The production of hard coal and lignite showed a downward trend till 1999

after 1994. The production of crude petroleum increased gradually from 1994 to 2003

except 1995. The production of natural gas had a positive growth till 2001 except

1997. After 2001, its production decreased as compared to 20011evel. The production

of iron ores and chromium ores increased during this period (1994-2003) but in some

years the production level dropped and again increased subsequently. The production

of manganese ores and salt declined during this period, volume fluctuating from year

to year.

Mining industry accounts for more than half of the total volume of industrial

products in Kazakhstan in 2005. The volume of production from the mining industry

in 2005 exce~ded the 1990 level by 33.9 percent and by 2.4 times from the 1995 level

(Agency of Statistics of the Republic of Kazakhstan, 2006: 60). In 2005, oil

production increased by 2.8 times from the 1995 level (ibid). Oil production reached

51.3 million tonnes in 2005 (ibid). Natural gas (gross output), including oil-well gas

increased by 4.3 times in 2005 from the 1995 level (ibid). The volume of natural gas

reached 25.2 billion cubic metres in 2005 (ibid).

Iron ore production was 19.4 million tonnes in 2005 (ibid). The production

level in 2005 increased by 1.3 times compared to the 1995 level (ibid). The

production of other minerals also increased in 2005 from the 1995 level; copper ore

production was 33.7 million tonnes (1.6 times more); chrome ore was 3.6 million

tonnes (1.5 times more); manganese ore was 2.2 million tonnes (7.8 times more)

(ibid). The production of zinc in zinc concentrates increased by 2.2 times and copper

in copper concentrate by 1. 7 times in 2005 from 1995 level (ibid).

The following table highlights the production in mining industry in selected

years: 1990, 1995, 2000 and 2005.

211

Table- 4.9

Output of Mining Industry Products in Physical Terms in the Republic of Kazakhstan

1990 1995 2000 2005

Coal (thousand tonnes) 128000.0 79615.0 72429.5 81869.1 Lignite (thousand tonnes) 3443.0 3740.0 2442.9 4516.0 Crude oil (thousand tonnes) 21675.9 18122.8 30647.9 51258.2 Gas condensate (thousand tonnes) 4144.1 2518.0 4668.9 10660.0 Natural gas (gross output)- total (million 7113.5 5915.8 11541.9 25178.3 cubic metres) Natural gas in gaseous state (commodity -- -- 5808.4 9950.0 output) (million cubic metres) Iron ores (thousand tonnes) 23845.7 14902.2 16156.8 19445.1 Iron ore concentrates (thousand tonnes) 20016.9 12911.0 1348.2 7486.3 Iron ore agglomerate (thousand tonnes) 9715.6 4079.7 5895.2 5988.1 Iron rolled briquettes (thousand tonnes) 8871.1 7211.5 6640.0 7494.0 Copper ores (thousand tonnes) 38471.0 21592.0 32751.2 33740.0 Copper-zinc ore (thousand tonnes) -- -- 5116.5 5964.0 Lead-zinc ore (thousand tonnes) 18830.0 5678.0 5639.2 6599.7 Lead in a lead concentrate (thousand tonnes) 133.2 30.5 39.3 31.0 Gold-containing concentrates (thousand -- 32.0 92.8 123.2 tonnes) Copper in a copper concentrate (thousand 332.2 232.6 430.2 401.7 tonnes) Zinc in a zinc concentrate (thousand tonnes) 279.2 162.4 322.1 364.6 Aluminium ores (bauxite) (thousand tonnes) 3244.0 33I8.5 3729.6 48I5.3 Manganese ores (thousand tonnes) I23.0 284.3 I201.9 2207.7 Chrome ores (thousand tonnes) 3660.I 24I6.6 2606.6 3579.0 Marble and limestone for monuments, -- -- 26.8 247.0 surface finishing and construction (thousand cubic metres) Granite, sandstone and stone for -- -- IOI6.3 2635.8 monuments, surface finishing or construction (thousand cubic metres) Limestone and gypsum (thousand tonnes) 2189.3 67.8 3480.3 9I 88.8 Whitewash and dolomite (thousand tonnes) 80.0 2.9 308.8 I 147.1 Natural sands (thousand cubic metres) 10480.0 2050.2 I394.3 5499.0 Granules, chipping and power of stone, 5I501.1 6777.7 3698.2 20I27.8 pebbles, gravel, broken or crushed stone (thousand cubic metres) Clays and kaolin (thousand tonnes) -- -- 949.6 I 573.2 Raw phosphate crushed (thousand tonnes) -- 632.4 33.0 263.3 Phosphate fine grinding (thousand tonnes) I292.0 360.0 90.1 131.8 Natural barium sulphate and carbonate -- 83.0 46.1 251.0 (thousand tonnes) Salt and net sodium chloride (tonnes) 1074099 312989 36283 189849 Asbestos (thousand tonnes) 517.7 160.8 233.2 305.5

.. Source: Agency of statistics of the Republic of Kazakhstan (2006), Kazakhstan for Years of

Independence: Informational and analytical compendium, Almaty, Kazakhstan, p. 60.

212

The above table points out that the production of coal was highest in 1990,

which subsequently declined in 1995 and 2000. In 2005, coal production though

improved from 1995 and 2000 level, however, could not reach the 1990 level. The

volume of production of lignite, crude oil, natural gas, zinc, aluminium ores,

manganese ores, lime stone, etc. increased in 2005 compared to the 1990, 1995 and

2000 level. Similarly, the volume of production of iron ores, copper ores, lead,

chrome ores, natural sands, salt, asbestos, etc. dropped in 2005 from the 1990 level.

The table and diagram below compare the production level of the mining .

industry in 2005 with that of 1990, 1995 and 2000 figures.

Table- 4.10

Output of Mining Industry Products in 2005 (as% of 1990, 1995 and 2000)

2005 2005 2005 as% of 1990 as% of 1995 as% of2000

Total coal 65.7 103.6 115.4 ...

Crude oil, including gas condensate 239.8 300.0 175.3

Natural gas (gross output) 354.0 425.6 218.1

Iron ores 81.5 130.5 120.4

Copper ores 87.7 156.3 103.0

Chrome ores 97.8 148.1 137.3 ..

Source: Agency of statistics of the Repubhc of Kazakhstan (2006), Kazakhstan for Years of Independence: Informational and analytical compendium, Almaty, Kazakhstan, p. 61.

Figure- 4.5

Output of Mining Industry Products in 2005 (as % of 1990, 1995 and 2000)

450

400

350

300

250

200

150

100

so

0

Total <:oai Crude oil, Natura! g.as induding r,as {~:ross output}

condensatC'

Iron orC's

J;l 2 005 as% of 1990 • 200Sas%of 1995

213

Copp0r ores Chro!liC· ore~

2005 as ':X, of 2000

The above comparison explains that the production of coal in 2005 was about

two-third of the 1990 level but more than 1995 and 2000 level. The production of

crude oil in 2005 was very high, nearly 2.4, 3.0 and 1. 75 times of 1990, 1995 and

2000 level, respectively. Similarly, the production of natural gas in 2005 as compared

to 1990, 1995 and 2000 level was 3 .54, 4.25 and 2.18 times more, respectively. The

production of iron ores, copper ores and chrome ores in 2005 declined as compared to

the 1990 level but the volume of production in 2005 was more compared to 1995 and

2000 level.

COMPANIES ENGAGED IN MINING SECTOR

The section below discusses some of the major companies involved in Kazak mining

sector-

OJSC Kazakhmys Corporation: Joint Stock Companies of Kazakhmys corporation

are Zhezkhazghan non-ferrous metallurgy, Balkash mining and Metallurgy plant

(BMSP), Zharkent mining and processing enterprise and ShyghysKazmys, an affiliate

of the Corporation. The leading company is Samsung Deutschland (Germany).

Production includes cathode copper, alloyed silver, alloyed golden,

concentrated zinc, lead dust, sulphur acid and less common metal salt. The main

activities include production and transmission of electricity and heating energy,

scientific research and development works, construction works, industrial and civil

engineering, transportation of passenger and cargo. The planned production capacity

was 400 thousand tonnes of refined copper (Government of Republic of Kazakhstan,

2007a: 289). 99.9 percent of cathode copper, granular silver and golden are exported

(ibid). The main consumer is Samsung.

Kazakhstan Aluminium OJSC: It was established by Kazakh Government decree of

9 March 1996. The enterprise includes Pavlodar aluminium plant, Torghai bauxite

department, Krasno-octyabrsk mining department and Keregetas mining Joint Stock

Company. The outputs of the enterprise are aluminium, metal gallium, bauxite

mineral, fire clay and lime. The major activities are production and selling energy.

The planned production capacity of alumina was 1050 thousand tonnes (ibid). The

product is exported to the aluminium plants in Western and Eastern Siberia in Russia.

Gallium is also exported to different countries.

214

Oskemen Titanium and Magnesium Plant OJSC: The enterprise is engaged in

production ofhigh quality titanium sponge, magnesium alloys and metal magnesium.

The managing company is Specialty Metals Company (Canada). Earlier the enterprise

was dependent on imported raw materials. Kazakhstan introduced the Programme for

Titanium-Magnesium industry development to develop Kazakhstan'.s titanium raw

material base and reduce dependence on imports. Titanium sponge is exported to

countries like the USA, Japan, France, Germany, etc., under the agreement of the firm

Specialty Metals Company.

Southpolymetal CJSC: The plant produces lead, its associated non-ferrous metals

and rare metals. It combines production of lead, bismuth, rare metal, sulphur acid,

workshops producing pure metal, pure litharge, lead fillings and rolled lead and gold

and silver alloys. Thirteen elements are extracted and 30 different kinds of output are

produced from multi-metal raw materials. A COOOO, a brand of lead, produced by

the plant, is registered as the quality standard in London metal stock market

(Government ofRepublic of Kazakhstan, 2007a: 290).

Kazmyrysh OJSC: It was established on 7 January 1997 and includes Oskemen

lead-zinc plant, Leninogor multimetal plant, Ziriyan zinc plant JSC, Teke1i ore mining

and processing enterprise and Bukhtyrma waterpower complex. The managing

company is Kazastur Zinc AG firm (Switzerland). Metal zinc, refined lead, gold,

refined silver, copper concentration, metal cadmium, sulphur acid, electricity and

energy are the major products.

Kazchrome Transnational Company: The Company based in Akhtobe produces

ferrochromium. The raw materials available in Kazakhstan are used to produce

ferroalloys.

Akhsu ferroalloy foundry OJSC: The main outputs are ferrosilicon, ferrochrome,

ferrochrome silicon, ferromanganese silicon. It is located at Akhsu-5 city in Pav]odar

oblast. Kazakhstan Mineral Resources Corporation and Kazchrome Transnational

Companies manage this company.

Dong ore mining and processing enterprise OJSC: The main products are chrome

concentration and crushed iron ore production. It is situated at Chromtau city in

Akhtobe oblast. The enterprise includes Kenizdeu open cast mine, Donskoi mine,

215

Zhastar and Ortalykh mmes, DOF-1, DOF-2. The managmg compames are

Kazakhstan mineral resources and Kazchrome Transnational Companies. The base of

the ore mining is the Southern Kempyrsai chrome ore. Ore reserves constitute 31 0

million tonnes (Government of Republic of Kazakhstan, 2007a: 291 ). The planned

production capacity of ore resource was 2760 thousand tonnes and of concentration

1200 thousand tonnes (ibid).

Ferrochrome OJSC: The main products are ferrochrome, ferrochrome silicon. It is

located in Akhtobe. The planned production capacity of the enterprise was 350

thousand tonnes of ferroalloys (ibid). The managing companies are Kazakhstan

mineral resources and Kazchrome transnational company.

Ispat-Karmet OJSC: It produces cast iron, steel, hot and cold-rolled sheet products,

tin or black sheet iron, coke and by-products. It is based at Temyrtau in Karaganda

Oblast. The production capacity is 6.3 million tonnes for steel and 4.9 million tonnes

for sheet products (ibid). The managing firm is Ispat International Ltd (Great Britain).

The main iron ore reserves of Khostanai and Karaganda Oblast are used by this

company.

Sokolov Sarybai mineral production association OJSC: The major products are

concentration of iron ore, fluxed pellets, extraction of crude crushed ore, dolomite,

lime and road metal (ballast). It is located at Rudni city in Khostanai Oblast. It

includes Sarybai, Sokolov, Khashar, Korzhynkol mines and Sokolov subterranean

mine with pit extraction of ore. The production capacity for extraction of ore is 32

million tonnes; concentrated product processing is 14.9 million; palletising is 8.4

million tonnes (Government of Republic ofKazakhstan, 2007a: 292).

Orken LTD: It produces iron ore concentration. It is based in Lisokovsk city,

Khostanai Oblast. It possesses 'unique source' of raw material (ibid). Mined deposit

of brown iron ore has reserves for 2.76 billion tonnes that provides 200 year

production capacity (ibid). Production capacity is 5.5 million tonnes of iron ore

concentration per annum (ibid). Main consumers of the output are Joint Stock

Company Ispat-Karmet and Russian MMK JSC, ZSMK JSC.

Atasuruda OJSC: This enterprise located in Kharazhal settlement of Kharaghandy

Oblast produces and refines metal ore. The enterprise consists of Western Kharazhal

216

mine with a planned production capacity of 2.2 million tonnes of ore per annum

(Govemment of Republic of Kazakhstan, 2007a: 292). The managing firm is

'ELROVO' trust. Consumers of iron and manganese ore are Ispat-Karmet and ZSMK

Joint Stock Companies.

Toghai LTD: This enterprise located in Karaganda oblast produces and refines iron

ore. The raw materials for this enterprise are found in Kentobe, Toghai-1 and Toghai-

2 deposits. The ore is transported to Ispat-Karmet.

Zhayrem ore concentration enterprise OJSC: Located in Zhayrem settlement of

Kharaghandy Oblast, the enterprise produces low phosphorus iron, manganese, iron

manganese and monobarium ore. The mines of the plant are in the Westem part of

Kazakhstan, mainly in Ushkhatyn. The managing firm is 'NAKOST A AG'

(Switzerland). The main consumers of the products are lspat-Karmet, Akhsu

ferroalloy foundry and Kazakhstan's oil producing companies.

DEVELOPMENT OF MANUFACTURING INDUSTRIES

Manufacturing or processing industry is an important sector contributing substantially

to the Kazakh economy and a major source of employment for the people.

Some large manufacturing enterprises like Almaty Plant of Heavy

Engineering, the Shymkent production association on production of printing press,

Vostokmashzavod, the Pavlodar tractor plant, a number of instrument-making plants,

etc. existed before independence. The manufacturing sector was not, however,

developed in the Republic. The enterprises were not connected with each other and

were actually "technological units in the system of the manufacturing sector of the

Soviet Union" (Centre for Foreign Policy and Analysis, 2002: 114). Before

independence, the basic needs in production of machinery were met by imports from

other Republics, part of the unified Soviet economy. Kazakhstan's production was

also exported to other republics, mainly to Russian VPK (ibid).

After disintegration of Soviet Union, the Kazakh economy faced a series of

problems. The manufacturing sector suffered because of breakdown of economic

connections with Russia. Few of the problems faced by the Kazakh manufacturing

sector were- reduction of manufacture's capacities, deterioration of technical and

217

economic parameters of work, etc (Centre for Foreign Policy and Analysis, 2002:

114). This deteriorating situation continued till 1999.

The following table and diagram indicate the volume of production of

machinery in the manufacturing sector from 1990 to 1999.

Table- 4.11

The Index of the Physical Volumes of Production of Machinery in the Manufacturing Sector ( 1985 = 1 00%)

Year 1990 1991 1992 1993 1994 1995 1996 1997 1998

Machinery 110.7 113.4 94.9 81.0 50.9 36.8 34.4 25.7 19.8

1999

18.9

Source: Centre for Foreign Policy and Analysis (2002), Kazakhstan, Kazakhstan m Focus: Ten Years of Independence, Almaty, p. 114.

Figure- 4.6

The Index of the Physical Volumes of Production of Machinery in the Manufacturing Sector (1 985 = 1 00%)

120 no.-Il3..t

100

so

60 j •11ach.incry j

36 s ~-t..t

1 ... --,.., . 11

19.S ~?·9 ....

.. . I 19901991 1992 19931994 1995 1996 199- 199S 1999

The above table and diagram point out that the production level of machineries

in 1990 and 1991 was higher than the 1985 production level. Since 1992, machinery

production dropped sharply till 1999, reaching its lowest level in 1999.

The number of people employed in the machinery industry and their share in

the total personnel engaged in Industrial sector are shown in the following table.

218

Table- 4.12

The Number of the Industrial Production Personnel at the Machinery Enterprises

Year 1990 1991 1992 1993 1994 1995 1996 1997 1998

The number of industrial 387.2 342.8 326.2 272 234 202.3 176.1 139.7 90.7

production personnel

(in thousands) In % by the last - 88.5 95.2 83.4 86.0 86.5 87.0 73.9 64.6

year In% by 1990 100 88.5 84.2 70.2 60.4 54.2 45.5 36.1 23.3

In% by the total amount of 28.5 24.8 24.1 22.8 20.9 19.7 19.2 17.4 11.9

industrial-production

personnel of the RK

1999

67.0

74.2

17.3

10.9

Source: Centre for Foreign Pohcy and Analysis (2002), Kazakhstan, Kazakhstan in Focus: Ten Years of Independence, Almaty, p. 115.

The table above explains that the number and percentage of people engaged in

machinery production decreased gradually from 1990 until 1999, reaching its lowest

level in 1999. Similarly, the percentage of people in machinery to the total population

engaged in industry came down gradually after 1990 until 1999.

There were about 1862 enterprises till the middle of 1999 in Kazakhstan;

whereas in 1990 there were 3902 enterprises (Centre for Foreign Policy and Analysis,

2002: 115). During 2000-2001, only 5.4 percent of all machinery enterprises

manufactured final products (ibid). In the same period, other enterprises specialised in

intermediate products, spare parts, repair services, etc (ibid). Lack of investments in

fixed capital halted new construction in the manufacturing sector. However, technical

modernisation and reconstruction of working enterprises did not improve substantially

the capacities and technological level of machinery branch as a whole.

Kazakhstan on its own had the capacity to meet up to 50 percent of the

machinery production requirements by 2001 (ibid). However, non-competitiveness

both on quality and the prices made consumers import mechanical engineering items

from abroad (ibid).

The non-competitive and low quality of machinery production was because of

out dated machineries, which existed since the Soviet days. In this connection, for

219

example, mining machines of Finnish, American or Swedish production, despite huge

cost (by 2-4 times), took over the Kazakh market, products from joint-stock company

Vostokmashzavod could not compete with them (Centre for Foreign Policy and

Analysis, 2002: 116).

The industrial base in the machinery production in Kazakhstan was in bad

shape post-independence. To improve the situation, few steps were taken like

introduction of short-term prospect programmes for developing machineries, import

substitution and industrial policy was directed to reconstruct and modernise the

industrial potential to meet modem requirements (ibid). Revival of this sector was

possible mainly because of two factors- the availability of qualified personnel and

economic growth necessitated increase in industrial equipment (ibid).

The development of the manufacturing sector aimed at expansion of "internal

manufacture and transition mainly on production of competitive products of

technological purpose for the greatest possible provision of the national economy with

necessary machines, equipment and spare parts, guarantee and post guarantee service,

increase of opportunities for export" (Centre for Foreign Policy and Analysis, 2002:

117). The government in order to stimulate the manufacturing sector introduced few

measures. Large machinery manufacturers and associations capable of utilising

effectively the available financial and production capacities were encouraged. The

government started network of the assistance centres to sell the products of the

machinery enterprises through a network of dealers and distributors (ibid). These

associations were primarily created in agricultural machinery production to boost

large scale production of tractors with latest technology including, combine harvesters

and other hi-tech engineering goods. With measures like these the Kazakh

government aimed at renewing and reviving the manufacturing base of the Kazakh

economy.

These associations could also utilise the expertis_e (scientific, technological

and industrial potential) of other countries like Russia and other CIS countries through

cooperation. Creation of new association like Eurasian Economic Community (EEC

or EURASEC), helped in closer integration of machinery and greater cooperation,

which suffered in the transition period (ibid: 118).

220

The government encouraged production of machineries like tractor and

agricultural machinery, transport machinery, machinery for oil and gas production and

processing equipment for production of metallurgical industries. Development of

machinery in general contributed to the growth of small businesses especially in areas

like R&D work, experimental improvement of new technologies, production of small

stock-produced items, repair and adjusting equipment, etc. (Centre for Foreign Policy

and Analysis, 2002: 118). There is need for structural changes within the

intra-industry level in order to increase the contribution of the manufacturing sector in

the gross domestic product and particularly in industry (ibid).

Development of Manufacturing Sector after 2000

From 2000 onwards, the Kazakh government implemented a series of measures as

part of the new industrial policy to develop the processing/manufacturing sector. State

assistance was provided to domestic producers and the government encouraged

substitution of import goods by local products.

The government took measures to prevent dumping of goods from the

importing states. The government also adopted protectionism policy of state financing

to promote local producers. Due to these efforts, Kazakhstan's processing industry

became top among the CIS countries in terms of level of production (Government of

Republic of Kazakhstan, 2007a: 299-300). In 2000, the index of production volume

reached 115.6 percent (ibid: 300). The volume of production level increased in the

fields of machinery (the index of production volume was 163.3 percent), weaving and

sewing industries, leather and footwear, wood articles manufacture, etc. (ibid).

The domestic machinery producers supplied only 14.8 percent of overall

consumption demands (more than US $2 billion per annum) in the domestic market

(ibid). The machinery base had the potential to supply more than 30 percent of

domestic needs in Kazakhstan (ibid). The oil-and-gas industries need facilities like

cast oil products, purifying columns, water sprayers, mules, skimmers, valves, covers

for oil and gas pipes, which are produced in Joint Venture Belkamit, Munaygazmash

JSC in Oskemen, equipment factories of Semey and Oral, conversion enterprises of

the Northern Kazakhstan and in the series of other plants in Kazakhstan (ibid). The

products are ofhigh quality.

221

Kazakhstan Tractor OJSC, the largest in production of agricultural machinery

produces caterpillar tractors and bulldozers. The products are of high quality and have

a competitive price level too. Stepnogor bearing factory OJSC is one of the prominent

companies in Kazakhstan producing equipment and spare parts for the railways.

Conversion plants of Northern Kazakhstan, Oral and Almaty cater to the basic

needs of the railways. These plants produce barrels, passenger and freight stock, and

technology for road construction, containers, road surface parts, technology for rail

transportation and spare p~rts. Other note-worthy engineering industries are

export-oriented and rolled stock producers (Almaty Heavy engineering industry

OJSC), liquid carriers (Joint Venture Belkamit), Caterpillar tractors and bulldozers

(Kazakhstan tractor OJSC), etc.

The Kazakh government adopted the medium-term 'Programme of

Engineering Complex Development', which lasted up to 2003. It aimed to increase

production of high quality and competitive goods, which would provide the domestic

economy with required machine, equipment and spare details and guaranteed service.

This was introduced to facilitate the government to pursue the policy of import

substitution and improve exports. The priority areas outlined for the Programme were­

the manufacturing of machines for oil and gas production industry, producing

equipment for mine-metallurgy and energy complex, tractors and agricultural cars,

rail transportation equipment and tools (Government of Republic of Kazakhstan,

2007a: 301 ).

The light industry of Kazakhstan is famous for its weaving, sewing, leather

and footwear industries. The first refining of the cotton is performed in the seven

plants located in the republic. The total capacities of these plants are 150 thousand

tonnes and are equivalent to 4th and 5th type of cotton fibre (ibid). Decrease of annual

cotton production to 180-200 thousand tonnes forced the plants to reduce their total

production to nearly half of their total capacity (ibid).

The three wool refining factories in the Republic can wash 75 tonnes of wool

per annum and perform the first stage of refining (ibid). There also exits several small

factories that can wash up to 25 tonnes of wool (ibid). The number of sheep has gone

222

down to one-fourth, resulting in drop in spinning activities too; 20 tonnes per annum

in 2003 (Government of Republic of Kazakhstan, 2007a: 301).

Weaving industry includes cotton industries and cloth manufactures. The total

production capacity of spinning enterprises is 46 thousand tonnes and that of cotton

goods are 168 million square metres (ibid). Some of the main weaving industries are­

Almaty cotton industry, Ozat OJSC in Almaty and Adal LLP in Shymkent are

specialised in textile industry and Akh Zhyp OJSC in Almaty is specialised in

spinning. The total production of the Almaty ~otton industrial complex, Ozat in 2000

was 5703 thousand metres, while Akh Zhyp JSC knitted 827 tonnes of wool

(ibid). The Khostanay Textile Company LLP and Kharghaly JSC in Almaty Oblast

deal with the treatment of wool. The enterprise produces 23 thousand tonnes of knit

and weaves 40 million metres of material (ibid). Almaty Kylem JSC knits carpet

articles but only 15 percent of its production capacity was used in 2003 (ibid).

Vostoktextile LLP is the only Company in Kazakhstan dealing with

manufactured fibres and fibre industry. The production capacity per annum is 500

thousand metres (Government of Republic of Kazakhstan, 2007a: 301). About three

thousand enterprises are specialised in manufacture of seaming articles (ibid: 301-

302). Kazakhstan Texti-Line industrial-commercial LLP is one of the enterprises,

which produces sportswear. Zhambylleather footwear JSC, leather Partnership JSC in

Petropavlovsk, leather industries in Oral, Pavlodar, Shymkent, and many other small

enterprises are the main enterprises in the leather industry. The range of leather goods

includes chrome, stiff and supple leather products. The footwear industry includes

twelve large and medium sized enterprises (ibid: 302). Most of the small footwear

industries have closed down (ibid). The main reason is low competing capacity of

domestically produced footwear (ibid).

The food industry comprises one third of the total processing production in

Kazakhstan. During the period 1993-2003, the number of enterprises in the food

industry increased from 3.2 thousand up to 6.7 thousand (ibid). The food industry is

capable of meeting the country's need for meat, milk products, breadstuffs and rich

fermented goods, flour, grain and other products (ibid). The annual increase of the

investment in the domestic food industry made domestically produced goods more

competitive, increasing the share of domestic products from 60 percent up to

223

70 percent (Government of Republic of Kazakhstan, 2007a: 302). The most famous

factories in Kazakhstan are Rahat JSC and Tulpar JSC in confectionary, Almaty Tea

LLP in tea industry, Khant OJSC and Koksu Sheker JSC in sugar industry and May

JSC in vegetable oil industry.

There have been joint ventures with leading foreign companies in the food

industry. Few examples are- Coca-cola Almaty Bottlers Joint Venture (beverage),

Bekker and K Joint Venture (sausage manufacture), Sultan JSC (macaroni products),

Food Master Joint Venture (milk Products), Philip Monjs (tobacco products),

Kharaghandy sweets JSC, etG. Few known companies in Kazakhstan are Bayan Sulu

OJSC (confectionary) and margarine factories in Almaty and Karaganda.

The programme on import substitution encouraged domestic producers in food

and light industries. It aimed at increasing production capacity of domestic

enterprises, creating new workplaces, reducing dependence on exported items and

enhancing competing capacities of domestic products. The programme increased the

share of domestic products in total national consumption to 85 percent by 2003 (ibid:

303).

Kazakhstan in last few years is trying to develop sectoral processing industry.

Measures like supporting domestic producers, protection of market from dishonest

competition and integration with research and scientific progress for increasing

competing capacity of Kazakhstan's products were taken to develop the sector (ibid).

The government policy of developing processing industries aimed at increasing

purchasing power of the people and creating more employment opportunities (ibid).

The table below highlights the volume of production in various items of the

manufacturing sector from 1994 to 2003.

224

Table- 4.13

Production of Manufacturing Sector (thousand metric tonnes)

Year 1994 1995 1996 1997 1998 Meat, fresh (in terms of carcass weight)

Beef and veal 642 548 463 398 348 Mutton and lamb 252 206 167 147 119 Pork 158 113 110 82 79

Butter 46.5 30.4 15.3 6.9 4.4 Cheese 20.6 13.6 10.2 7.5 5.9 Wheat flour 1960 1575 1593 1528 1546 Sugar, raw 97 113 143 148 230 Sugar, refined 14 16 23 13 22 Beer (thousand hectolitres) 1291 812 636 693 850 Cigarettes (million) 9393 12080 19121 24109 21747 Cotton yam 20.0 4.2 3.1 2.3 1.9 Woven cotton fabrics (million square metres) 85.0 21.3 21.0 14.1 10.3 Sulphuric acid 681 695 653 635 605 Jet fuels 420 327 314 294 275 Motor gasoline 2207 2180 2296 1787 1732 Kerosene 250 249 268 231 229 Distillate fuel oils 3471 3303 3295 2838 2495 Residual fuel oils 4200 3272 3146 3000 3052 Cement 2033 1772 1115 657 622 Crude steel 2969 3027 3217 3880 3117

Source: UN ESCAP (2005b ), Umted Nations, Economic and Social Commission for Asia and the Pacific, Statistical Yearbook for Asia & the Pacific: 2004, New York, p. 212.

Table- 4.13 (continuing)

Production of Manufacturing Sector (thousand metric lonnes)

Ye9r 1999 2000 2001 2002 2003 Meat, fresh (in tenus of carcass weight)

Beef and veal 344 306 288 297 --Mutton and lamb 99 95 97 101 --Pork 98 133 181 187 --

Butter 3.6 4.4 6.1 9.0 --Cheese 6.3 10.8 10.2 11.2 --Wheat flour 1262 1830 1776 2107 --Sugar, raw 229 280 347 391 481 Sugar, refined 4 5 5 6 --Beer (thousand hectolitres) 824 1357 1732 2019 --Cigarettes (million) 18773 19293 21395 23453 --Cotton yam 1.8 1.0 1.5 2.5 --Woven cotton fabrics (million square metres) 9.3 5.3 7.6 14.0 --Sulphuric acid 685 635 695 710 733 Jet fuels 229 229 63 -- --

Motor gasoline 1292 1297 1582 -- --Kerosene 71 71 3 -- --Distillate fuel oils 1830 1954 2245 -- --Residual fuel oils 2133 2317 2737 -- --Cement 838 1175 2029 2128 --Crude steel 4105 4799 4691 4866 5067

Source: UN ESCAP (2005b ), Umted NatiOns, Economic and SocJal CommiSSIOn for Asia and the Pacific, Statistical Yearbook for Asia & the Pac(fic: 2004, New York, p. 212.

225

The above table shows that the production of beef, mutton, butter, cheese,

refined sugar, cotton yam, woven cotton fabrics, jet fuels, motor gasoline, kerosene,

distillate fuel oils and residual fuel oils decreased during the period 1994 to 2001 or

2002 (some items do not have data in 2002). The production level fluctuated with

production increasing in some years and decreasing in certain years. But level of

production of pork, wheat flour, beer, cigarettes and cements were higher in 2002 as

compared to 1994 level, although fluctuating in production level (in some items) from

year to year during 1994-2002. Production of raw sugar, sulphuric acid and crude

steel in 2003 was higher than 1994 level.

The manufacturing industry produced commodities worth 1833 billion tenge

in 2005 (Agency of Statistics of the Republic of Kazakhstan, 2006: 62). It constituted

35.8 percent of the total industrial production volume in 2005 (ibid). The largest

increase in ~olume of production from the manufacturing industry was registered in

2000 and 2001 (growth rate made up 17.4 percent and 15 percent, respectively) while

in 2002-2005 production growth was in the range from 6-9.2 percent (ibid).

In 2005, the volume of production growth in manufacturing industry was

1.7 times more than 1995 (ibid). The increase was mainly the contribution of the

following sectors- manufacture of transport facilities and equipment (by 8.5 times);

manufacture of leather, products of leather and manufacture of footwear (by 5.3

times); pulp and paper industry, publishing (by 4.9 times); electric equipment,

electron and optic equipment (by 2.8 times); other non-metal mineral products (by 2.7

times) tobacco goods (by 2.4 times); ferrous metallurgy (by 1.8 times); food products

and non-ferrous metals (by 1.5 times) (ibid). However, in 2005, the volume of

production of the processing industry decreased from the 1990 level and average

annual decrease rate during these years were at 2.5 percent (ibid).

The output of metallurgical industry and finished metal products accounted for

a substantial share of the processing industry (more than 40 percent) and food

products, including drinks, and tobacco (more than a quarter) (ibid). The volume

indices in these two sectors in 2005 as compared to 1995 were 161.8 percent and

147.9 percent, respectively (ibid).

226

The following table compares the volume of production in the manufacturing

sector of selected years.

Table- 4.14

Volume of Industrial Production by Economic Activities in the Republic of Kazakhstan (million tenge)

1990 1995 2000

Manufacturing industry 57.6 359982 835773 Manufacture of food products, including 17.5 82542 239369 beverages and tobacco Manufacture of food products, including 17.1 78643 217987 beverages Manufacture of tobacco 0.4 3899 21381 Textile and sewing industry 7.8 13400 36144 Manufacture ofleather, products ofleather 0.8 684 1278 and manufacture of footwear Treatment of wood and manufacture of 0.7 2189 5314 wood products Manufacture of paper and paper board; 0.4 2802 13161 publishing Manufacture of coke, petroleum products 2.5 38612 70247 and nuclear materials Manufacture of petroleum products 1.5 35766 59870 Chemical industry 3.1 19453 17627 Manufacture of rubber and plastic products 1.4 1537 4401 Manufacture of other non-metallic mineral 3.6 22035 13781 products Metallurgical industry and manufacture of 9.6 128603 376640 finished metal products Metallurgic industry 8.7 121335 365903 Ferrous metallurgy 2.9 57207 153735 Manufacture of non-ferrous metals 5.7 63569 210582 Manufacture of finished metal products 0.9 7268 10738 Machine-building 9.1 41368 45823 Manufacture of machinery and equipment 7.3 31659 18072 Manufacture of electrical equipment, 1.4 5483 17486 electron and optic equipment Manufacture of transport facilities and 0.4 4227 10265 equipment Other industrial sectors 1.0 6755 11989

2005

1832987 469729

424814

44914 32454

1884

5677

44110

167265

156179 54310 26841

105562

729379

684369 279167 393490

45010 172781 55951 38567

78263

22996 ..

Source: Agency of Statistics of the Repubhc of Kazakhstan (2006), Kazakhstan for Years of Independence: lnfonnational and analytical compendium, Almaty, Kazakhstan, pp. 62-63.

The table indicates that production of all the items in terms of tenge showed

high growth from 1990 to 2005. The production of chemical industry, manufacture of

other non-metallic mineral products and manufacture of machinery and equipment

227

dropped in 2000 from the 1995 production level. Similarly, the production of textile

and sewing industry declined in 2005 compared to the 2000 level.

The table and diagram below compare the volume of production in 2005 with

the production level of 1990, 1995 and 2000 in the manufacturing sector.

Table- 4.15

Volume Indices of Selected Sectors of Manufacturing Industry

2005 2005 2005 as% of1990 as% of1995 as% of2000

Manufacturing industry 6801 172.4 15503 Manufacture of food products, 5302 14709 161.2 including beverages and tobacco Textile and sewing industry 1703 13507 15608 Manufacture of petroleum products 73.4 10908 19008 Chemical industry 1603 10509 22900 Manufacture of other non-metallic 6909 26903 35608 mineral products Ferrous metallurgy 9403 18206 11201 Manufacture of non-ferrous metals 11408 14608 10905 Machine-building 13803 24509 29707

0 0 Source: Agency of Statlsttcs of the Repubhc of Kazakhstan (2006), Kazakhstan for Years of

Independence: Informational and analytical compendium, Almaty, Kazakhstan, ppo 62-630

Figure- 4.7

Volume Indices of Selected Sectors of Manufacturing Industry

350

300

250

200 -- -172A

150 155.3

100 68.1 1Wl

so 0

~--\ o~" "'"'' ~<,;

190.8 156.8 •

.s- ¢-" o~" <}>.:;;

22'J.O A

.... ~ 0..)'> 0~

-~ <:?' ·f<' «' .;..~ o('-l<c ?<;"

00 ~~ >:>(_;:' .,c,'?i

~" ...._..) '!;.\o .,rv (y((, e~ ~ '!;.'b(,; (5' iS 0 "'0 If ~.:;; ~q, '!;.0 ~'?i ..._-» «.? '!;.~ ~0

' '!;.'1><.- ~ 0 -\qf .§q, -»'

~.:;; '<.,;

~'I> cY 1<.,1><., 1<.,1i "'.:;; ~" ~'I> ~1i

/'

356.3

•

~<./ ~ ~~ :$-<;.;

~~ $-e"-' »"' ~

('-0 ~(_;:' ..._o

o" \~

"" ff 'v..t<; <;-0 d-,e.

..._.:;; '!;."~><.,

~->;, ~1i

1>-"' ;;; (_;:'

297.7 .. - ..

-~l<c -~~

'!;).:;; r;;

~<::' ~'b(,;

_._ 2005 J~% of 1995 J. 2005 ,1s% of 2000

228

The above table and diagram analyse the volume of production in 2005 in the

manufacturing industry as a whole and also indicate the volume of production of its

major components. All items mentioned in the above table showed a low level of

production in 2005 as compared to the 1990 level, except manufacture of non-ferrous

metals and machine-building industry. In 2005, the volume of production of the

manufacturing industry and in all its components showed higher production level as

compared to the 1995 and 2000 level.

ELECTRICITY, GAS AND WATER: PRODUCTION AND

DISTRIBUTION

Electricity, gas and water constituted an important sector of Kazakh industrial

structure. By 2005, electricity, gas and water production and distribution accounted

for 5.6 percent of total industrial output of Kazakhstan (Agency of Statistics of the

Republic of Kazakhstan, 2006: 64). As compared to the 2000 level, the production

volume on the whole in 2005 increased by 1.3 times (ibid). However, the production

level in 2005 was low as compared to 1990 and 1995 level by 40.6 percent and 9.3

percent, respectively (ibid).

The following table mentions the production of electricity, gas and water

during 1990, 1995, 2000 and 2005.

Table- 4.16

Production of Electricity, Gas and Water in Physical Terms

1990 1995 2000 2005

Electric power- total, mln. kWh. 87379.2 66661 51635.1 67819.1 out ofwhich produced by:

Thermal electric power stations, 80012.9 58329 44092.7 --mln. kWh. Hydro electric power stations, 7366.3 8331 7531.1 --mln. kWh.

Thermal energy, thsd. Gcal. 125969 82877 65503.1 87750.0 Natural water, mln. Cub. m. -- -- 2068.6 2318.8

Source: Agency of Statistics of the Republic of Kazakhstan (2006), Kazakhstan for Years of Independence: Informational and analytical compendium, Almaty, Kazakhstan, p. 64.

The above table shows that the production of electric power dropped gradually

in 1995 and 2000 from the 1990 level. It recovered in 2005 but still could not touch

the 1990 level. Similarly, the production of thermal energy declined in 1995 and 2000

229

from the 1990 level; it tried to recover in 2005 but was far away from the 1990 level.

Natural water production in 2005 increased from the previous production level of

2000. Kazakhstan in 2005 produced 67.8 bln. kWh. and 87.8 mln. Gcal. of electric

power and thermal energy, respectively. In comparison with 2000, electric power and

thennal energy production in 2005 increased by 1.3 times and natural water by

12.1 percent.

The bulk of industrial product in Kazakhstan constitutes production and

distribution of electricity, steam and hot water supply. In 2005, the share of

production and distribution of electric power increased from 58.2 percent in 1995 to

63.7 percent in 2005; steam and hot water from 20.9 percent in 1995 to 25.5 percent

in 2005 (Agency of Statistics of the Republic of Kazakhstan, 2006: 65).

The table and diagram below compare the volume of production and

distribution of electricity, gas and water in 2005 with 1990, 1995 and 2000.

Table- 4.17

Volume Indices of Production and Distribution of Electricity, Gas and Water

2005 2005 2005 as% of 1990 as% of 1995 as% of2000

Production and distribution of 59.4 90.7 127.2 electricity, gas and water Production and distribution of 75.1 100.8 129.5 electricity Production and distribution of 99.7 59.7 134.7 gaseous fuel Steam and hot water supply 62.6 98.6 132.6

Collection, purification and 58.3 74.5 103.7 distribution of water

.. Source: Agency of StatistiCS of the Republic of Kazakhstan (2006), Kazakhstan for Years of

Independence: lnfonnational and analytical compendium, Almaty, Kazakhstan, p. 65.

230

Figure- 4.8

Volume Indices of Production and Distribution of Electricity, Gas and Water

160

140

120

100

80

60 .

40

20

0

127.2

90.7

1295

A

100.8

······························.··.··~··

~-1. 59.4

Production and Production and di~tribution of distribution or

dectricity. ga~ and dectricity

.134.7

99.7

59.7

Prodtlttion and

distribution of

gast'Ol!S fud

132.6 ... A"

~ ..............

98.6

Steam <Jnd hot

wJtcr supply

103.7 -:A

58.3

Collection. puritie<1tion <lnd

distribution of wJter wJtcr

The above table and diagram reflect that the production and distribution of

electricity, gas and water in 2005 were less in volume compared to the 1990 and 1995

level but higher than the 2000 level. The production and distribution of electricity in

2005 was less compared to the 1990 level but more than the 1995 and 2000 level. The

production and distribution of gaseous fuel; steam and hot water supply; and

collection, purification and distribution of water showed positive growth in 2005

compared to the 2000 level but the volume was less in 2005 compared to the 1990

and 1995 level.

CONCLUSION

Kazakhstan is endowed with rich natural resources like oil, gas, coal, uramum,

chromites, iron, manganese, copper, lead, zinc, aluminium, gold, tin, silver,

phosphorus and barite mines. Raw materials, nevertheless, constitute the base of

Kazakh industry and development. But excessive reliance on raw-material has its own

disadvantages like fluctuation in international demands of raw materials and their

price level.

Kazakhstan introduced various privatisation programmes, which encouraged

the growth of private sector in the economy. It developed small and medium-sized

businesses, and established market relations in corresponding economic sectors.

231

Within a short time since independence, Kazakhstan managed to develop the private

sector and attract foreign and domestic capital for the export-oriented industries.

Kazakhstan introduced various industrial policies, such as- "Strategy for

Innovative Industrial Development of Kazakhstan for 2003-2015", "Bank for

Kazakhstan Development", "Investment Fund of Kazakhstan JSC", "National

Innovation Fund JSC", "Industrial Clusters", "Programme of 30 Corporate Leaders

and State Holdings", etc. to strengthen the industrial base of the economy. The

purpose of these policies was to diversify and modernise the Kazakh economy.

Industrial production began to reflect changes as a result of government

reform measures. The share of industrial production in the total GDP increased in

2000 from the 1990 level but declined in 2005. The volume of industrial production in

terms of quantity dropped sharply in 1995 from the 1990 level and increased

gradually in 2000 and 2005. The number of personnel engaged in industries decreased

gradually in 1995, 2000 and 2005 from the 1990 level. But the average monthly

wages and salaries, profitability and fixed capital investment in industry increased

sharply in these years. The growth rate of the mining sector; manufacturing sector;

and electricity, gas and water decreased from 2000 to 2005 though they showed

positive growth. The growth rate of industry as a whole reflected a downward trend

from 2000 to 2005.

Mining and metallurgy is the leading industrial sector in Kazakhstan. The

contribution of the mining sector also increased gradually since independence. The oil

and gas sector comprised the major portion of the growth in the mining sector. The

share from the manufacturing sector in the total industrial production, however,

declined. Manufacturing sector need to be strengthened. The shares from sectors like

machine-building and metallurgy, which is the backbone- of- an industrialised

economy, represented an insignificant amount.

The production of coal was highest in 1990 compared to 1995, 2000 and 2005.

The production of crude oil in 2005 was very high, nearly 2.4, 3.0 and 1.75 times of

1990, 1995 and 2000 level, respectively. Similarly, the production of natural gas in

2005 was highest compared to the 1990, 1995 and 2000 level by 3.54, 4.25 and 2.18

times, respectively. The production of iron ores, copper ores and chrome ores in 2005

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declined as compared to the 1990 level but the volume of production in 2005 was

more compared to the 1995 and 2000 level. The volume of production of lignite, zinc,

aluminium ores, manganese ores, lime stone, etc. increased in 2005 from 1990, 1995

and 2000 level. Similarly, the volume of production of iron ores, copper ores, lead,

chrome ores, natural sands, salt, asbestos, etc. dropped in 2005 from the 1990 level.

Manufacturing industry is one of the leading sectors of the Kazakh economy.

The production level of machineries dropped sharply after independence and reached

its lowest level in 1999. Of the total population engaged in industrial sector, the total

number and percentage of people involved in machinery production decreased

gradually from 1990 till 1999. The production volume of food products (including

beverages and tobacco), textile and sewing industry, petroleum products, chemical

industry, other non-metallic mineral products and ferrous metallurgy dropped in 2005

from the 1990 production level. However, the production level in 2005 was higher

than 1995 and 2000 level. The production volume of non-ferrous metals and machine­

building industry were highest in 2005 compared to 1990, 1995 and 2000 level. The

volume of production as a whole in manufacturing industries were less in 2005 than

the 1990 level. However, the volume of production in 2005 was higher compared to

the 1995 and 2000 level.

The production of beef, mutton, butter, cheese, refined sugar, cotton yam,

woven cotton fabrics, jet fuels, motor gasoline, kerosene, distillate fuel oil and

residual fuel oil decreased during 1994 to 2001/2002. But the production of pork,

wheat flour, beer, cigarettes and cements was higher in 2002 compared to the 1994

level. Similarly, production of raw sugar, sulphuric acid and crude steel in 2003 was

higher than 1994 level.

The bulk ofKazakstan's import constitutes machineries and equipment. Otber__

important imports are metal and related goods, mineral products and chemical

products. The increase in the share of mineral products in total exports was much

higher than other exportable items during 2000-2005. The amount and the share of

FDI in extractive industries increased sharply during 1996-2005. But the amount and

the share of FDI in manufacturing industries decreased during the same period,

reaching to only 4.4 percent in 2005 of total FDI. FDI in other sectors grew

substantially in this period.

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The production of electric power dropped gradually in 1995 and 2000 from the

1990 level, recovering in 2005. The production level, however, still could not reach

the 1990 level. Similarly, the production of thermal energy declined in 1995 and 2000

from the 1990 level. It recovered in 2005 but also could not match the 1990 level. The

production and distribution of gaseous fuel; steam and hot water supply; and

collection, purification and distribution of water increased in 2005 compared to the

2000 level but were less in 2005 compared to the 1990 and 1995 level.

The Kazakh _industrial base suffered after the collapse of the Soviet Union.

The end of unified Soviet economic structure affected the economy of the newly

independent post-Soviet Republics. Initially after independence, the Kazakh

government found it difficult to sustain the economy. The transition from State

controlled economy to privatisation was not easy for Kazakhstan. The Kazakh

government gradually introduced several reforms to address the issues of industrial

revival. Some sectors revived faster than others. Few could attain the 1990 level of

production and some could not. The new economic policies, however, helped Kazakh

economy to gradually enter the international market. It could also attract foreign

investment in the Republic. Industrial reforms helped Kazakhstan to diversifY its

economy and foster greater economic growth. Among the Central Asian Republic the

Kazakh economy gradually became the strongest.

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