Privatization of Kazakhstan by Mike Haynes
Kazakhstan moving to a free market by John Heuss
Privatization of Kazakhstan
by Mike Haynes
In the early 1990’s, the countries of the Former Soviet Union were going through a difficult period. Transition was a difficult task for any government. There were basically to rules of thought. The first was “the big bang” which meant that the government would immediately liberate prices and privatize everything as quickly as possible. The second approach was called gradualism. This meant that transition to a market economy was to occur slowly, where the state still maintains control over some sectors of the economy, and may continue to set prices. The latter is the approach Kazakhstan chose.
When Kazakhstan began to privatize, there were two legislative acts passed. One law was the “on property” and the second one was “on destatization.” Both these acts opened the door for entrepreneurship. Before 1990, state owned property made up ninety percent of the economy. Now, through the two statutes mentioned, about eighty percent of the economy is made up of private enterprises. The only part of the economy that the state still controls is large industry, transportation, and communication, and the government only controls fifty percent of those businesses. Between 1993 and 1996, there was a complete demonopolozation of the transport industry. Over 9000 units of motor transport have been privatized. Also, the way drugs are distributed has been privatized. Over fifty seven percent of all pharmaceutical companies are now under private ownership. As one can see, Kazakhstan is gradually transitioning into full privatization. In fact, their plan is to completely privatize by 2030.
How is Kazakhstan planning to further its privatization goals? The answer is through foreign investment. The state is working towards attracting foreign capital by creating a favorable environment for investment. President Nazarbayev’s policy says “our cardinal objective is to present Kazakhstan in the eyes of the world community as a fairly attractive object of investment in major industries.” Kazakhstan is second in investment activities among CIS countries, right behind Russia. Their invested assets are 5.7 billion. They attract over $400 per capita in foreign investment. Philip Morris representative said that the reason for such success was that Kazakhstan “succeeded in creating a most favorable tax and investment regime.”
What does this all mean for Kazakhstan? It means that Kazakhstans economy will continue to grow. It is estimated the cost of developing transport will be $6 billion in 2005 and $3 billion will be needed to upgrade old power facilities. Kazakhstan has a good chance to meet and exceed its financial needs because of their good planning and gradual transition to privatization. However, don’t let it seem like this was an easy period in Kazakhs history. It was not. There was inflation and other economic hardships. However, because of there openness to foreign investment, Kazakhstan will become a prominent state.
Privatization in the Republic of Kazakhstan http://www.president.kz/articles/economy/economy_container.asp?lng=en&art=privat
Investment Activities in Kazakhstan http://www.president.kz/articles/economy/economy_container.asp?lng=en&art=invest
Kazakhstan moving to a free market
by John Heuss
On December 16 in 1991 Kazakhstan officially gained their independence from the Soviet Union. Kazakhstan’s transformation from a planned economy to a market economy has not come to fruition for a variety of reasons. With this newfound freedom, they also gained an economy that was underdeveloped in certain areas.
Kazakhstan was originally part of a country, now they were one of their own, but without the industry of an entire country. Output was falling, prices were soaring and shortages ravaged the country. The newly elected President Nazarbayev started his term by implementing the Privatization and Denationalization Act. Privatization and Denationalization Act was the countries first move toward a market economy, a gradual release of property, land, and industry from state control to private control. The purpose was to create a private sector for people to trade within, stimulate investment within the country, and reduce the already astronomical budget deficit. (Kalyuzhnova 70).
Each of the citizens were to receive a coupon book, which in total gave them each 100 coupons that they could use to invest in a home, property, and even an industry. These coupon books were distributed in three stages. First they were handed to a certain group of people based on employment, service, or on need from 1991 and 1992.
The second stage was from 1993 to 1995 where all citizens were to have these coupon books. The problem with these books lay in two issues. One was the size of the country; a population of about 7.3 million people in 1991, spread over the largest country, in population density, to detach from the Soviet Union led to unequal distribution. The second issue was the education of the country. Many citizens had no idea how to deal with this new concept of owning a property, let alone what owning an asset entailed; taxes, deeds, and investment strategy. The republic now country had been communist, ownership was not a foreign idea to this generation, one they had read about in books. In the end of 1995, only 33% of the coupons had been invested back into the economy. Kazakhstan’s economy was mainly based around two industries at the beginning; agriculture and mining.
While the agrarian sector did decrease slightly, due to an offset between the livestock loss and grain production increases, the industrial sector became stagnant. The industrialized sector did indeed turn out a large amount of ore, but Kazakhstan did not have a large industry to finish the goods in. Previously, Kazakhstan was part of a country and therefore only had to produce part of the finished good, but now the republic was a country of it’s own. With this lack of industrialization, the government saw a desperate need to improve the economy because the goods and resources they exported were not diversified at all.
With the communist structure still somewhat in place, there was no horizontal integration within the economy, hindering their ability to grow. For these reasons people did not feel comfortable investing in the industries. They took another gradual policy change to ease the transition and stabilize the already crisis prone economy. The Programme of Urgent Anti Crisis Measures and the promotion of Soci-Economic Reforms were implemented in 1993 to tackle the variety of problems within the economy. While the actual plan was fairly vague, it did point out the three areas causing the most problems; inflated credit loans, oversized budget deficit, and a lax fiscal policy.
Over the following three years, the plan was implemented but did not succeed in significantly decreasing these issues due to weak policy implementation and because the plan did not account for the new currency that was introduced. The Tenge was introduced in the end of 1993 as the new currency of Kazakhstan. The timing of the introduction was intended to give the government greater control over monetary policy and also reassure the citizens that changes were being made. But with an economy with rampant inflation, a large budget deficit, declining output, minimal private investment, and 72% of their exports being traded with Russia, the new currency devalued only a month after being on the market.
The citizens were not reassured by a new currency in a high inflation environment. A new government, a new currency, a new market, and new found freedom from communism; Kazakhstan tried to bring a market economy into this newly founded country. But one of the hardest things to do is to reverse the political affiliation in the hearts and minds of the citizens and show them that a democratic government can work with a free market economy. Kazakhstan’s failure was not due to policy but how fast they implemented and tried to change the economy. Had they done in gradually over a decade or two, the people would be able to assimilate much easier and that would stabilize their economy a little more.
Akiner, Shrin “Formation of the Kazak Identity”. Chameleon Press LTD. London England 1995
IMF “Kazakstan-Recent Economic Developments”, IMF Publication Services; Washington, D.C. 1996
Kalyuzhnova, Yelena “The Kazakstani Economy”, Macmillian Press LTD. Hampshire, England 1998