Iskaliev M.D.
World Economic Relations of Kazakhstan Under Conditions of a Mixed Economy.
Journal "Vestnik KazGU". Serial of Economic Siences. Almaty, Kazakhstan, 1998, Ļ 11.

The world economic relations of Kazakhstan play a great role in its making and development as a sovereign state. Economic and social problems of the Republic of Kazakhstan are too deep and versatile, that they may be solved only by radical changes of the whole system of the world economic relations under conditions of a mixed economy, because the contemporary world is complicated, diverse, dynamic and interdependent.

Interdependence of countries of the world community is based on the internationalization of the economic life that is seen in the internationalization of production, science, culture, mode of life and working conditions and on the development of international labor division.

It is well known that now even the most developed and largest states are not able on their own, without any relations with other countries to go ahead in science and technology, to make social and economic progress and to create conditions for effective production of all the necessary goods and services.

Such kind of tasks can be solved only thanks to international cooperation. It is especially important for those countries that are lagging behind in their development.

Specific features of Kazakhstan lie in the fact that at one and the same time it has the characteristics of a developed country (general literacy of the population, a wide network of educational establishments of culture and everyday life, research institutes, space research centres) and of a developing country ( raw materials direction of the economy, ecologically disastrous situation in many regions, a great need in foreign investments and new technologies and non-development of infrastructure).

In addition to this all, Kazakhstan has a vast territory (it takes the ninth place in the world ), intercontinental location without an outlet to the sea, i.e. it is far from the world sea routes. And railway, oil and gas pipelines as means of transport are not developed eno ng to the absolute indexes (production of oil, gas, ferrous and rare metals, grain) the RK is one of the potential partners of the world trade, according to the relative indexes (the GDP per capita) it is far from taking the leading place among foreign and CIS countries. It speaks about the fact that Kazakhstan is not participating sufficiently enough in international labor division and does not take advantage of increasing the economic efficiency as a whole.

It has become obvious that one of the reasons of such a situation is the old system of organizing foreign economic relations, when these relations were implemented only by foreign trade organizations which were oriented mainly towards raw materials export.

For the solution of the problem of an active participation of Kazakhstani industry in international labor division, it is necessary to enlarge the rights of the primary section of the foreign economic sphere and to give them the right of the direct outlet to the external market.

Thus, the transition to a more open economy in the process of foreign economic reforms may become an important level of stimulating the STP (scientific technological progress) in the country. And one of the practical steps in this field is to open joint ventures (GV) with enterprises, organizations and companies of foreign and CIS countries, that will promote to attract the sophisticated technical managerial experience and to create the competitive situation in the internal market of the Republic of Kazakhstan. The scale and the rate of industrial development of joint ventures in different countries are stipulated mainly by the character of the investment climate. But at the same time the joint entrepreneurship may be stimulated not only by pure economic motives, but also by group interests of different countries.

So, the solution of such difficult socio-economic problems envisages not the isolation from the outer world, on the contrary, the active interaction with each other, but not only receiving humanitarian aid or direct credits, though the latter depends on the solvency of the country.

But when we speak about efficient international economic cooperation another question is posed: what countries are to be given the priority in solving such a serious and comprehensive task? Of course, it is not easy to answer this question.

In a developed market economy the solution of such a question first of all depends on the economic entities themselves. The state also may play a great role stimulating or controlling different directions and forms of economic relations. Besides, it should be kept in mind that we shouldnít give up everything inherent to the command-administrative system. We should try to preserve those elements that were used in the world practice because there is no pure market economy anywhere. We shouldnít continue destroying the economic foundations of state power, because the state cannot disappear as the factor of economic development and regulation.

The state must act as a representative and defender of interests of all nations, of all the strata of the population.

We are at the initial stage of our way to the market. Thatís why the state is still playing a considerable role than in a developed market economy. Thatís why itís the economic strategy and foreign policy, and the real national interests depend on the state and are of keen interest.

While speaking about the possible partners on international economic cooperation, it is necessary to underline that we donít mean some definite countries. Their choice depends on many attendant circumstances. First of all, we should determine what group of countries to orientate and to what extent.

There is no any doubt in the fact that today it is especially important to continue economic cooperation with the CIS countries because we have much in common with them and not only in the economic sphere. And further uncontrolled destruction of these ties is fraught with huge misfortunes and losses. The same situation is with the former CMEA partners in the economic aspects. But the importance of these two directions in international cooperation in no case must shield the other ones.

Nazarbayev N.A., President of the RK, in his report "Independence of Kazakhstan: the lessons of history and the contemporary world", devoted to the 5th anniversary of the republic noted: "Integration efforts in one direction must not mean to reject integration in other vectors. The more so, that not all the broken economic ties with the former partners in building socialism can be restored because partial reorientation to other partners has already taken place. But at the same time we shouldnít overlook the transition state of our economy and non-adjustedness of the mechanism of the world economic ties. Under these circumstances it is reasonable to pool efforts in order to expand and consolidate economic cooperation with the countries of the West and South that have gained huge experience in this sphere."

National and economic interests of Kazakhstan are very complicated and diverse that they may be ensured properly only by expanding cooperation with different countries and groups of countries, i.e. in other words, with developed and developing countries.

There can be no doubt about the particular importance of the economic ties with industrially developed countries of the West (democratically and economically compared with the South). But unfortunately, we canít help taking into account the fact that Kazakhstan is not ready yet to large-scaled economic cooperation with western countries both as an exporter and an importer. At present, alas, we cannot suggest anything but raw materials (oil, gas, coal, metals). As far as raw materials are concerned, because of the reduction of their material and energy capacity the prospects are not very glowing.

In order to realize its export possibilities connected with different scientific projects like the conversion of military production, Kazakhstan needs time and money. In many cases Kazakhstani market is still alien to the West. And it happens not only because of the limited import possibilities, stipulated by the lack of currency resources. There are some other complicated problems arising from the backwardness of our civil economy that is incapable to satisfy the real needs and wants, i.e. goods and services and new technologies, the creation of which in the West is the core of the economy.

All these processes cannot be fulfilled in a twinkling of an eye, they must correspond to reality and real possibilities. Of course, this process may be accelerated but only to a certain extent and quite differently in different directions. Unless we take all these requirements into account, we canít achieve the expected results. Thatís why to try to speed up importing of everything advanced (advanced production methods, advanced experience, technologies), is very unwise. So, the expansion and strengthening of economic relations with foreign and CIS countries would facilitate the republic to go out of the current difficulties and to make a certain contribution to the process of economic revival of Kazakhstan.

But it will be possible only with the view of the appropriate strategy of development for the near and distant future though it would be Kazakhstani industry.

The main thing is to determine correctly the strategy of development for 2030 soberly assessing the real needs and possibilities of Kazakhstan with regard to its place and role in the economic (and political) area in the CIS and the world community as a whole. And to avoid possible losses connected with the so-called "invention of a bicycle", it is high time for Kazakhstan to learn a lesson from the world and its own experience. Without such reorientation it is impossible to speak about the genuine economic revival of Kazakhstan and take a dignified place in the world economy. Thatís why carrying out the economic reforms, striving for the stabilization of the economic and political situation, it is very important under the existing circumstances not to be held up at the practically inevitable stage of import-substitution or even superseding.

The talk, of course, about processing industry which has a very ramified and multilevel structure of production, that it cannot develop successfully within the framework of one, suppose, very large and economically highly developed country. And this peculiarity has become extremely vivid at the present stage of scientific and technological progress considerably complicating its structure and expanding the total assortment of products manufactured. In agriculture which is the basis of the vital activity o ensive export development must be put off. And it must be done on the basis of diversification and improvement of its structure, i.e. by promoting the products of processing industry to the world market. The possibilities of specialization and cooperation in this field, compared with the strictly fixed types of mineral or agricultural products, are limitless. Besides the elasticity demand for production goods is considerably high than for raw materials.

The urgency of development of industrial export is dictated not only by the lack of currency to pay for the vitally important import and to reimburse foreign debts in due time, but also for confirmation of its solvency. It is also very important not to make the same mistakes, to reduce the emergence and support of inefficient industrial productions to a minimum, that together with unprofitable agrarian structures destroyed the vitality of our economy in the past. The creation of the competitive environment in the internal market and integration of developing industry into the world economy are the most effective ways to avoid the above mentioned negative factors. Further market transformations in Kazakhstan, revival and development of the national economy are closely connected with attracting foreign investment resources. Besides, because of huge foreign debts ($ 5.7 billion, more than 25% of GDP) Kazakhstan is in great need of direct foreign investments (not in the form of credits and loans).

According to data of the Agency of Strategic Planning of the RK, now the republic is ready to use up 1.5 billion dollars of foreign investment capital annually.

Of course, there are some negative factors influencing directly or indirectly the investment climate in the Republic of Kazakhstan. So far the republic has no reliable transport communications with the markets of Europe, America or Asia. The weak and instable legal foundation does not enable the foreign firms to be sure in the near future and to expect the return of their invested capital.

Now it has become obvious that one of the basic conditions of ensuring stable development of Kazakhstan is the high investment activity (among the CIS countries Kazakhstan takes the 2nd place after Russia, from 1989 to 1996 it came to the amount of 2761 mln dollars of the USA, Russia Ė 5100 mln, Ukraine Ė 1167 mln; it is approximately 167 dollars of the direct investment per capita).

At present Kazakhstan is developing its financial cooperation with a number of international financial and economic organizations (IFEO) such as the IMF, IBRD, ABD, EBRD, IBD, and with the governments of such donor-countries as South Korea, Japan, the FRG, the USA and others.

During the period of 1996-1998 in accordance with the financial obligations it was declared at the Tokyo meeting of the Consultative group of the donor-countries in Kazakhstan to grant credits or loans in the amount of 1350 mln dollars of the US. (US $ 1350 mln)

But the question is: What are the terms and conditions of these investments?

Because in a few years they may turn into the financial burden for the ordinary people.

Investment inflows are mainly directed to mining industry of Kazakhstan. We can speak about the efficiency of investments when they are directed to agriculture, industry, and infrastructure.

But investment inflows in the amount over US $ 6 billion during 1992-1997 couldnít improve the production level by creating working places and many other social issues.

The world practice shows that those countries that have got considerable investment inflows are not rich in mineral resources (unlike Kazakhstan).

Kazakhstan today is a universally recognized state which is known at the worst as the Former Soviet Republic, and at the best Ė as the country with rather developed industry and agriculture and rich in mineral resources.

For example, the average assessment of the resources of the Caspian Sea Shelf and of the continental part enables us to start the extraction of the total deposits in the amount of 19 billion tonnes of oil equivalents.

Thatís why Kazakhstan is regarded by foreign investors as one of the main suppliers of energy items in the XXI century.

But now Kazakhstan is experiencing the lack of export capacities. And it, naturally, restrains the growth of oil and gas extraction. Thatís why in the end of 1998 the government began the construction of a pipeline with the participation of the newly formed Caspian Pipeline Consortium (CPC).

At the same time for the republic it is economically justified to export raw materials by railway transport means or tankers on the Caspian Sea. And the investors who are engaged in oil and gas, mining and other branches of industry have already been issued 630 licences.

The expected amount of investments for 23 years is valued at US $ 90 billion. Our republic attracts foreign investors not only with oil and gas. Kazakhstan has more than 1200 types of mineral raw materials, the richest deposits of ferrous and non-ferrous metals, uranium, phosphorus, gold, and many others that are well known all over the world. In fact there are a lot of foreign investors who are willing to invest their money into an agrarian industrial sector, especially in the sphere of processing products.

Kazakhstan is a large agrarian state. The potential of the country in exporting grain exceeds three million tonnes, but in the near future it is supposed to reach the level of 10 million tonnes. What is more, Kazakhstan is one of a few states in the region and among the CIS countries, that provides itself with food. The possibilities of further development of this sector of the economy are great because the main sale markets for food industry are located along the borders of the Kazakhstani borders.

Thus, one of the main tasks of day is to create a favorable investment climate, because it leaves much to be desired. The development of the economy is hampered because of the low level of the development of the republicís infrastructure.

Thatís why great changes are taking place in the republic today: telecommunications are being modernized, sophisticated space communications are being introduced, opti-fibre lines are being laid down. Positive results have been achieved in the transport sphere. The TransAsian Railway line has almost been completed that will open an access for Kazakhstan to the sea ports of the Indian and Pacific Oceans. The railway station "Friendship" on the borderline with China is being reconstructed which will increase the carrying capacity of the railways in the eastern and southern-east directions. Regular airlines with the countries of Europe (Germany, Holland, Austria, Hungary) and Asia (China and Turkey) have been opened. Some other new lines are planned to open.

More or less favorable conditions have been created for foreign investors: a number of normative and legislative acts and organizational measures for the improvement of foreign economic activities have been adopted.

And the time is not far off, when Kazakhstan may and must become some kind of connecting link between the West and the East for consolidating economic, political and other relations common to mankind.

The world practice shows that under the conditions of the economic crisis it is necessary to enhance the responsibility and regulationary functions of the state and government in the investment sphere.

The system of state guarantees will promote the realization of huge projects. But for granting such guarantees it is necessary to meet the two main requirements: to possess complete information about the alternative projects and mortgage funds that will provide against these guarantees. But at present it is very difficult to get such kind of information because the then existing highly organized systems of state planning bodies, research centres, and others have been destroyed and the new ones have not been established yet. Thatís why it is very important now to create the regional information centres and to bring them in line with the international information centres.

Such centres are to carry out the general economic monitoring in the region but not only to appraise the investment projects.

So, the functional (real) independence of the Republic of Kazakhstan depends on the reasonable and effective management of the world economic relations, which will enable the republic to take the worthy place in the world economy.

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