Paradox of plenty in Kazakhstan

In 1993, a geographer and economist from Lancaster University introduced the term of “resource curse”, which describes the global phenomena of the unprecedented drop in living standards in the countries that export oil (Richard, 2001). As is known, the raw material orientation of the state hinders the growth of real income of the population, stops the true realization of citizens, who are not involved in the fuel and energy complex, ruins the economic health of the nation; oil and gas industry provides income to a limited group of people, which, in its turn, increases.

Kazakhstan ranks one of the leading positions in economy among the countries of Central Asia, but over the past couple of years, it went through a series of economic problems on a global and national scale. The main economic problem of the past four years was the absolute collapse in oil prices on the double, as well as the dependence of the country from the export of raw material resources, which in its turn weakened the position of Kazakhstan on the world stage greatly. Therefore, the topic of «resource curse» is quite relevant for Kazakhstan nowadays. If we do not study this problem and do not solve it, the economy of Kazakhstan can be collapsed. This will result in the undermining of the economy and will plunge the country into a deep crisis, which will be much harder to be solved in course of time. That is why this dependence must be eradicated as soon as possible. The first clear message of dependence of Kazakhstan on the exporting of raw materials became observed under the global change in oil prices.

The figure presented below shows the export components of Kazakhstan.

Fig. 1. Export composition (Kazdate, 2016)

As the Figure 1 shows, a huge chunk of the export composition falls to the share of mineral raw materials, it is accounted as 69.1 % of all exported goods in total. On the base of the diagram one can draw several conclusions. Firstly, according to the above mentioned data , the economy of Kazakhstan is dependent on the export of raw materials very much, and secondly, it is quite obvious that the level of economic diversification is very low, which is evident from the fact that the share of manufactured goods is limited to 25.2 percent.

The main exported goods of the Republic of Kazakhstan is the commodity group of "Mineral products" that describes the raw material orientation of the economy of Kazakhstan. The commodity group “Mineral products” includes oil, gas, uranium, ferrous and non-ferrous metals, as well as coal, iron ore, manganese, chromite, lead, zinc, copper, titanium.

Table 1

Export composition (Ministry of National Economy of the Republic of Kazakhstan, Committee on Statistics, 1991)

However, as the Table 1 shows, despite the fact that the commodity group “Mineral products” includes more than ten different minerals as the primary export of raw materials, the level of oil exports is estimated as high as 47.7 percent.

Fig. 2. Kazakhstan Balance of Trade (4)

It would be right to note that the year of 2014 is remembered for many of citizens of Kazakhstan for a sharp decline in oil prices additionally aided by the shale revolution in the industry of the oil sector, as well as for a number of economic and political events. According to the Figure 2 presented above, we can observe the following trend: in 2013, with the drop rates on the double, the GDP volume declined at a rate of 58.7 %; this fact, in my opinion, shows that economy of Kazakhstan is affected by the “resource curse”. Meanwhile, when the oil prices rose steadily, the Kazakhstan economy showed the dynamic GDP growth.

Table 2

On top of that, a sharp decline in GDP gave rise to a number of social and economic problems.

Table 3

Social and economic annual report [5]

I would like to consider a number of social and economic problems arose over the past couple of years:

–the devaluation of the tenge

–the rapid increase in inflation

–lowering of wages, worsening of living standards

Dependence on oil resulted in a bunch of problems. Looking at the situation, we need to draw proper conclusions and find a solution to overcome this problem. Continuous development of this tendency threatens the further long-run development of the state. Brain drain, exodus of the population, reduced standards of living, as well as a row of other problems can result in serious consequences.

It raises a question, what kind of measures should the government take? According to data found during my numerous researches, such problems have already taken place in our history. There are more than 20 states, where the indicator of export of raw materials is still 49 % (Canada), or even 99.5 % (Iraq). This list includes countries from all parts of the world, such as Norway, Iraq, Australia, Venezuela, Canada, and Nigeria. Although, due to the peculiarities of local historical process, as well as to different approaches to the development of the economy, one can observe that standards of living in these states developed in different ways. Having rich resources, some of these countries developed successfully (Canada, Australia, and Botswana), while the development of the others left much to be desired. Why is happened so?

Therefore, looking at overseas experience, we need to start making our first steps in the overcoming of the resource dependence.

On the example of Australia, one can conclude that the elimination of the effects of raw material orientation of economy of Kazakhstan will help to the real active diversification of the economy, as well as to an active governmental support of the small and medium-sized enterprise. From its extent and pace will depend, how quick the economy will get rid of dependence on raw materials, as well as on the trend of increasing exports of mineral resources and meeting the basic needs of the economy through imports of goods. The alone stimulation of the non-raw export trade policies is not enough. It is necessary to change the principles of the tax system, government regulation, as well as to reduce the administrative costs for doing business. The macroeconomic policies should be aimed at improving of the total factor productivity, at the creation of complete technological complexes for the growing number of industrial sectors in high-tech industries. [6] This will contribute to the formation of the favorable investment climate; as well as the formation of large corporations with the support of the state, capable in the course of diversification of activities, to reallocate resources from extractive industries to the manufacturing industry. Kazakhstan should strive for the consistent transformation of the financial sector in the prevailing channel of the transformation of private savings into investment.

References

1. Richard M Auty. Resource Abundance and Economic Development. New York: Oxford University Press; 2001
2. Import and export of Kazakhstan: structure and indicators of foreign trade [Online] (updated 3 Jan.2016) Available at Accessed January 3, 2016.
3. Ministry of National Economy of the Republic of Kazakhstan, Committee on Statistics, and 1991. Main social and economic indicators of the Republic of Kazakhstan.

Available at Accessed November 8, 2017.

4. URL:
5. Ministry of the National economy of the Republic of Kazakhstan. Analytical report: Actual issues of migration policy: assessment of the current status, the forecast of demand in labor migrants taking into account their qualifications, illegal labor migration, the experience of foreign countries. Available at Accessed December 25, 2015.
6. R Torvik. Why do some resource-abundant countries succeed while others do not? Oxford Review of Economic Policy. 2009;25(2):241-256.