Kazakhstan: On the Path of Sustainable Economic Development And Accelerated Reform of the Society

Contents

1. Kazakhstan has changed beyond recognition
2. Kazakhstan strives to meet the challenge of the future
3. Kazakhstan - a responsible member of the international community
4. A modern economy – the cornerstone of the modernization of the society
5. Our Future – modern education and skills that meet the requirements of the 21st century

Good evening, dear ladies and gentlemen!

I am glad to welcome you to Kazakhstan. I very much hope that you will enjoy your stay here and return as our guests on many future occasions.

Thank you, Ambassador Holbrooke for giving me the floor; I appreciate your generous introduction. I know you as a keen observer of Kazakhstan’s development; not a dispassionate observer but a genuine friend who is willing to provide support and advice whenever needed. That was my impression when we met a year ago and reviewed developments in Kazakhstan and our neighborhood. Today’s conference further confirms our friendship.

It is a great honor for me to speak in front of such a distinguished and influential audience and to take part in deliberations of an institution that plays a key role in shaping the strategy, and encouraging the development of American-Asian relations.

I would stress very strongly that we are actively striving towards mutual understanding. I hope that you all have an opportunity to observe today’s Kazakhstan and to see it from my vintage point, the vintage point of someone who has led this nation for all these years. For my part, this occasion provides a unique opportunity to tap into your help in making an impartial evaluation of what has been achieved and make policy corrections for the future.

1. Kazakhstan has changed beyond recognition

In the presence of such an informed audience there is little need for me to describe in detail the situation in Kazakhstan in 1991, the year when we signed the Declaration of Independence and took the path to becoming an independent and sovereign country.

Recalling the dramatic collapse of the Soviet Union, Lee Kuan Yew of Singapore wrote: “It was terrifying to see how the enormous empire first became unmanageable and then collapsed.”

Compared to the other Soviet republics, the condition of our country was far from favorable. Judged by the basic social-economic indicators, Kazakhstan was not even among the top ten republics.

Along with tough economic and social challenges, we inherited a powerful nuclear arsenal with the entire infrastructure necessary to develop and upgrade our own nuclear weapons. Although some of my associates tried to convince me of the advantages of belonging to the “Nuclear Club,” Kazakhstan took an unambiguous decision to shed its nuclear weapons and to de-militarize. We elected to become a Territory of Peace.

Today our country confirms its unwavering commitment to be a reliable and responsible international partner who, together with the United States and other leading countries of the global community, contributes to international and regional security, fight against international terrorism, nuclear proliferation and other modern threats.

From the rather difficult beginning in the early 1990s, this approach was a key element in the plans for our independent statehood and a reflection of the philosophy that guided our actions. The fundamental pillars of this approach are as follows:

Clearly definable objectives in building a solid economic platform, open democratic and prosperous society, and a role as a responsible and respected member of the international community where our nation plays an important role in ensuring geopolitical stability and regional security.

A sense of purpose and consistency. Within a short period of time, Kazakhstan has successfully walked a difficult path from a command-and-control state economy to a market economy, from a single party diktat to political pluralism, from an ideology of suppressing identity to the universal values of human rights and freedoms. Kazakhstan has actively integrated into the global community. That is the solid platform that has enabled us to develop still more ambitious plans to build one of the most dynamic economies in the world and to achieve high living standards. Such progress is inseparable from democratic development and open society.

Realism and responsibility in implementing social reforms. During the gradual progress towards achieving our goals we seek to take into account the general principles of building a functioning market economy as well as the particular and important features of a multinational, multi-faith society, which is located in Asia and until recently was part of a totalitarian empire. This approach ensures the stability and predictability of the course of reform, which in turn reduces the risks of destructive public turmoil during the transition period while shaping our country as a reliable and predictable international partner.

Clearly, at the beginning of the radical social reforms, we had many questions and a lot to learn. There were miscalculations. It goes without saying that not every decision was well thought out. But today, bearing in mind the distance we have traveled, we are fully justified in saying that both the strategy and model of social evolution that the scholars from the John F. Kennedy School of Government recently called The Third Way Of Development, have proven their viability and potential.

Currently, according to the main indicators of social-economic development and living standards, Kazakhstan has already overtaken most of the CIS countries and continues to develop at a much faster pace then practically all independent post-soviet states.

At the same time, we have successfully maintained an atmosphere of stability and mutual tolerance in our multinational and multi-religious country. We have nothing even close to the kinds of religious, ethnic, nationalist or other extremism.

First and foremost, it must be acknowledged that our achievements are due to the trust, diligence and purposefulness of the Kazakhstan people themselves. I am also grateful to all of my associates and comrades, and many foreign friends and partners, for the practical support for, and positive attitude toward our initiatives.

Let me offer just a few statistics to illustrate our achievements: in 1994 the GDP per capita was around 700 USD, now we have every reason to expect that this figure will reach 5,800 USD by the year of 2010 and 9,000 USD five years later.

During the last 10 years, the minimum wage has grown 25 times, average pensions have grown 4.6 times; private deposits in banks and total volume of private savings per capita have grown 36 times.

These days the government is undertaking broad and promising education, social and health care programs.

Almost 40 billion USD of direct foreign investments have been attracted to Kazakhstan. In per capita terms this significantly surpasses the level of direct foreign investment achieved by all other CIS countries. Our country enjoys the most liberal economic legislation of all post-soviet states. Kazakhstan has a truly functioning market economy. Investors know that today Kazakhstan is a reliable partner that guarantees stability and protection of foreign investments, one which continues to improve the legislative framework for investment but without canceling the terms and conditions of existing contracts.

Some progress can be measured in numbers, some not. Among the latter I am talking about social and political changes in our country and in the life of every citizen of Kazakhstan. Without such changes there would have been no economic transformation.

Today, all the institutions of a modern liberal democracy are in place. Political pluralism and a multi-party system are becoming the norm. We regularly have free democratic elections in this country. Civil society institutions are developing, including for example over 5,000 NGO’s. Freedom of speech is secure and non-state mass media have been established and operate actively. Kazakhstan has joined international conventions on human rights and has established an institution of the Ombudsman for human rights. We have introduced a moratorium on the death penalty.

And finally, we were the first among CIS countries to pass a law to fight corruption. Since then we have adopted a wide range of comprehensive and practical measures to overcome this corrosive social ill.

2. Kazakhstan strives to meet challenge of the future

It is with real pleasure that I describe our achievements to date. The fruits of our work are visible to any open-minded observer.

But life goes on. We absolutely recognize that today’s agenda must meet new social needs. These arise from the logic of our country’s own development as well as from changes in the international situation. Contemporary threats and challenges require more dynamic reforms of the entire system of socioeconomic and sociopolitical relations. These reforms will enable Kazakhstan to maintain its leading position in the post-soviet space and in Central Asia and to remain a competitive and respected member of the international community.

This comprehensive and realistic assessment of the current situation is at the basis of the action program announced in February of this year in my annual Address. This was entitled, “Kazakhstan on the road to accelerated economic, social and political modernization”.

I will not go into the details here. Some of the participants in today’s conference may have seen it. If not, you can do it now right here in Kazakhstan. My colleagues and I would be happy to answer all you questions related to this program.

Here, I would simply like to touch upon probably the most important of our priorities for future development. The Address clearly states that our aim is to build an open and democratic society that respects the commonly accepted standards of western democracy while taking into account the experience of the dynamic South East Asian states. This must also reflect the traditions of our multinational and multi-faith society. We believe this is possible only because we have established a solid economic foundation. And because the whole society has already walked a considerable distance along Kazakhstan’s path of democracy.

The Address presented a comprehensive package of national political reforms that have been developed, debated and are now implemented on the basis of a dialogue involving the entire society and all the political forces here in the environment of full transparency of the decision-making process for the public.

These reforms include:

• Measures to combat terrorism and religious extremism;
• The strengthening of measures to provide religious freedoms and, ensure religious tolerance; minimize and ultimately eliminate all manifestations of religious intolerance;
• Reforms to establish government by parliamentary majority;
• The increased involvement of Parliament in controlling the administration of the state budget; participation of both chambers in the formation of the Central Election Committee and Constitutional Council;
• Introduction of mandatory reporting by the Prime Minister and members of the government to parliament; annual parliamentary approval of government’s plan of legislative activity;
• Legislative reform to strengthen the right to free speech, freedom to collect and disseminate information in Kazakhstan as one of the necessary mainstays of a modern democratic state;
• The strengthening of constitutional and democratic rights of the citizen, including an increase of the human rights’ powers of the Ombudsmen and other elements of the rule-of-law state;
• An upgrading in the mechanisms to tackle corruption and introduce rules of ethics in the civil service;
• Reform of the system of the protection of rights and personal freedoms in Kazakhstan, including restructuring of the law-enforcement agencies and improving the relevant legislation in order to prevent illegal and arbitrate actions by law-enforcement agencies and their officials;
• Reform of law-enforcement agencies and relevant legislation in order to fight more effectively against crime and drug trafficking;
• Administrative reforms to further upgrade efficiency in the state management system;
• The introduction of “e-government” to increase quality and speed-up the response of state agencies to the demands of citizens and non-governmental organizations; to provide public access to government’s data-bases and ultimately create an effective and efficient system of governance
• Reforms to upgrade the professionalism of state structures and the quality of the government services;
• Reform of the judicial system in order to strengthen guarantees of citizens’ rights in legal proceedings and enforcement of judicial decisions; step-by-step introduction of jury trials, further democratization of the judicial recruitment process, and an increase in the professional training of judges;
• Measures to ensure the transparency of legal proceedings.

As always, in implementing these large-scale reforms, we would appreciate advice and know-how from our international partners and friends.

3. Kazakhstan - a responsible member of the international community

We know, of course, that such ambitious objectives can only be achieved in a favorable international setting.

That is why international and regional stability and security issues rank high in our list of concerns.

The most dangerous challenge that international security system currently faces is international terrorism. Today, its scale has surpassed all forecasts.

Kazakhstan undertakes active steps to combat terrorism and extremism. Our country is party to all of the UN Conventions on fighting terrorism. We have established a national anti-terrorist center that interacts with similar international and regional structures. We have developed a system to counteract money laundering by and financing of terrorist organizations. A law on counteracting extremism has been passed.

Kazakhstan has joined the international antiterrorist coalition headed by the United States. We have opened our airspace to the coalition’s planes and publicly announced that Kazakhstan “is ready to fulfill its obligations foreseen by the UN decisions and agreements signed with the US”.

These are the principles of our approach to keeping the Kazakh sapper squad in Iraq as a part of the efforts to stabilize that country. The squad is still there despite the fact that recently the number of members of the coalition has dwindled. Kazakhstan is ready to support international efforts to stabilize the situation in Afghanistan and eliminate drug trafficking in that country.

I would like to speak separately on the situation in Central Asia, a region that possesses significant human, natural and industrial resources.

The Central Asian region is undergoing a transformation from a marginal area of world politics to a focal point in the Eurasian system of coordinates.

Consequently, the strengthening of the system of international security in Central Asia has emerged as one of our top priorities. Today Kazakhstan is known as an island of stability and prosperity in the region. But we want the whole region to be like that.

The international community has followed with growing concern the events both in Kyrgyzstan and Uzbekistan. Central Asia can become a region with a rapidly developing economy and open markets, capable of not only developing international economic ties but of joining the coalition of countries that vigorously fight terrorism and drug trafficking. Alternatively, it may become a region torn apart by internal contradictions and in which a wave of violence in one country serves as an example to others.

The Kyrgyz and Uzbek people are not just our good neighbors, but they are our brothers. Therefore we consider their misfortune as our own. And we do our best to assist and restore stability within a framework of law and democratic procedures – which is the only way forward.

Now is the time when Central Asia needs additional large-scale measures to strengthen the international security system in our region. I am confident that we could have more active cooperation with the United States in this field.

For example, serious integration within the Central Asian region might act as one such measure. It offers the hope of newly bolstered stability, economic security and political progress for the region. It would be important for us and for the rest of the world. At the beginning of this year, I addressed leaders of Central Asian states with just such an initiative.

Keeping in mind current realities, I think this proposal deserves careful consideration.

4. A modern economy – the cornerstone of the modernization of the society

Finally, I would like to share with you some of our plans that are directly related to the very topic of today’s conference – open Asian markets, and the prospects for developing international business and effective interplay of national economies.

Today, raw material potential continues to be the main source of the economic growth of this country. And this industry is developing very dynamically. For the last 20 years we were able to double the volume of hydrocarbons production when all around the globe that increase was less then in 1.3 times.

Today most of the hydrocarbon fields of the country work at the peak of their production capability. Further increases in production, on the mainland primarily, are connected to the more intensive development of the Tengiz and Karachaganak fields. But the main increase of oil and gas production is expected to happen on the Caspian Sea shelf.

A State Program to develop Kazakhstan’s sector of the Caspian Sea up to the year of 2015 has been adopted.

The Program’s implementation will allow us to export 2 million barrels of oil per day in 2010, and 3 million barrels per day in 2015.

Currently Kazakhstan is actively negotiating to increase the transportation capacity of the existing oil pipelines of Uzen’-Atyrau-Samara and of the Caspian Pipeline Consortium.

Such oil export routes as Atasu-Alashan’kou and Aktau-Baku-Tbilisi-Ceihan are being developed. We have discussed these issues in detail with the US Energy Secretary Mr. Bodman, during our meeting last month.

A project to modernize the “Central Asia-Center” gas transportation system to carry Kazakhs gas is currently going ahead. And we are now studying a range of options for building a gas pipeline from Kazakhstan to China.

Given that the extractive industries provide the bulk of the national income, I would like to stress that we see the development of transparency in these sectors as one of the key elements of a healthy and sustainable economy. That’s why we regard the initiative of the British Prime Minister, Mr. Tony Blair, to increase transparency in the extractive industries as vital - and extend to it our total political support.

I would also remind you that Kazakhstan was the first country in the CIS to establish a “National Fund” to ensure sustainable social-economic development and make our country less vulnerable to unfavorable external factors.

Today the National Fund has accumulated over 5 billion USD invested in highly liquid financial assets that bring regular income to the country. Only 10 years ago, such a national reserve could only be dreamed of. The gold and hard currency reserves of the country, together with the resources of the National Fund, have reached more then 14 billion USD.

With the help of experts from the World Bank, we have developed a concept for accumulating and using the resources of the National Fund for the midterm period. It means an optimal balance of oil income distribution between the budget and the National Fund. It is envisaged that this mechanism will be launched in 2007.

Two years ago we introduced a strategy for industrial and innovation development in order to diversify our economy and develop non-extractive industries. A number of new development institutions and agencies such as the Development Bank and the Investment and Innovation Funds have been established. For the last three and a half years these institutions have approved projects worth of 1, 7 billion USD. By the end of this year 22 new projects will be added up to the 29 that are already being implemented. That will provide over 15 000 new jobs.

As of today, this diversification strategy is successfully moving ahead. A cluster model has been chosen as the core of the strategy.

We have selected tourism, oil and gas machinery engineering, food and textile industry, transportation and logistical services, metallurgy and construction materials production as priority fields for development. These industries represent the long-term specializations of our economy in non-raw material fields.

We are actively collaborating with Harvard University on this issue. A team of experts headed by Professor Ricardo Hausmann has developed for our resource-dependent economy a number of options for how to diversify it and increase its competitiveness.

Small and medium size business is increasingly being involved in these transformations. We are also planning to expose major state-owned companies and monopolies to the creative gale of competition. Very soon the Government will complete this task and SME will get a second wind.

I would like to underline that we provide extensive preferences for the investors who come to establish new value added production in the priority industries that are listed in the decree of the Government of the Republic of Kazakhstan.

Those preferences include either a 5 years-long opportunity for the investments’ depreciation or a corporate tax-free regime up to 10 years long. On top of that we provide tax-free regime on land tax, property tax as well as a customs-duty free regime for the equipment brought into the country to be used in an investment project.

Additional measures to stimulate investments include the opportunity to pay VAT out of the cost of the imported equipment, a VAT-free regime when importing leased items that are listed in special catalogues of the Government.

All together these measures show the eagerness of Kazakhstan to diversify its economy and establish fundamental conditions for the growth.

A few words about the financial system of Kazakhstan. The Standard and Poor international rating agency notes that the banking system of Kazakhstan is more efficient than that of Russia and other CIS countries.

Security market and fully funded pension systems are developing relatively fast. I want to mention that we have shifted from a pay-as-you-go pension system to the fully funded one in a very short period of time. The current pension system in Kazakhstan takes into account the interests of the new generation of Kazakhstan citizens as well as of those who had the right to a pension paid out of the old PAYG system. Today we have 14 fully funded pension funds that provide services to almost 7 million pension accounts accumulated through mandatory contributions.

Is it right to have such an advanced financial system and not make use of it to accelerate development? Two years ago, having studied the similar experience of Singapore, Dublin and Dubai, our government launched a project to turn Almaty into an international financial center.

Our intention is that Almaty should play the role of the so-called “growth point” acting as a catalyst of the overall economic development not only of Kazakhstan but also of the region as a whole.

Our transportation infrastructure can turn into another clear advantage for Kazakhstan. In recent years we have significantly boosted construction and reconstruction of railroads, highways, telecommunications and other grids.

A Trans-Kazakhstan railway is being planned to connect, at its first stage, Western China with the Caspian shore. We expect this issue to be discussed during the upcoming visit of Chairman Hu Jintao to Kazakhstan next month.

During my state visit to Azerbaijan at the end of May 2005, the Baku Declaration on the new railroad link between Turkey, Georgia and Azerbaijan was signed. I believe that this project will give a new impetus to the development of the “Europe-Caucasus-Asia” transportation corridor and will significantly upgrade the infrastructure of Asia, Caspian Sea, Caucus and Europe. In effect, it will restore the ancient Silk Road.

Joining the World Trade Organization is one of our priorities in strengthening and modernizing our economy. Negotiations on joining WTO are in a full swing. 38 WTO member-states are in the Kazakhstan working group. In the nearest future we expect to sign protocols with Oman, Turkey, Japan and Korea. By the end of this year negotiations with the US and EU will be completed. Almost 90 per cent of our laws that regulate external trade have been amended to meet WTO norms or are now under consideration by the Parliament.

5. Our Future – modern education and skills that meet the requirements of the 21st century

And now onto the issue that that will likely determine the success of our plans for economic modernization.

A new economy calls for a new knowledge system, for a new breed of modern managers and executives – well educated and professionally trained. Speaking the language of the economists – we are confident that investments into human capital are the most efficient and promising. That’s why the State assumes responsibility for incurring substantial expenditures to acquire new knowledge and human capital.

The most important and major investment the government can make is to ensure the availability of the very highest quality education and the best educational opportunities for its citizens.

For example, we will assist the brightest students to study abroad. Every year three thousand of our best students will receive “Bolashak” scholarships from the state budget to study in the leading universities of the world. Those who stay in Kazakhstan will have an opportunity to be lectured by the best foreign professors whom we intend to invite regularly to Kazakhstan.

This year we have started the implementation of an impressive social package for students and have created favorable conditions for the professional development of academic staff. And that is only a start.

Dear ladies and gentlemen!

I have introduced you to the situation in Kazakhstan and shared with you our plans. I believe all of you will agree that Kazakhstan has changed significantly, that the country is developing rapidly and moves on the path of economic, political and social modernization. Of course, we will face a number of difficulties in that quest but as they say “You conquer the road only if you keep on moving forward!”

The open-minded atmosphere that we have here encourages confidence in our mutual understanding and furthers my belief that we can always count on each other.

I have no doubt that the partnership between Kazakhstan and the United States will continue to get stronger. The US is the largest investor into the Kazakhstan economy. Our cooperation in the energy sector continues to grow. We are implementing our joint initiative to foster small and medium size businesses and thereby bring closer the private sectors of our two nations. We need therefore to sustain the dynamism on our political and economic cooperation.

I had my first introduction to the proceedings of your esteemed Society back in 1994. For 10 years now, the Asia Society and Kazakhstan have been developing and deepening valuable relationship, which forms the foundation of dynamic cooperation.

I was delighted to invite the Asia Society to hold one of its corporate conferences in Kazakhstan on the subject of the Kazakhstan’s Strategy of Diversification and Stable Growth. The development of Central Asia, the potential of the region, present an interesting and worthy subject for meetings, debates, and most importantly, deeds.

I believe that as a result of the thought-through course that we have taken, Kazakhstan today is a country that is bound to be of interest to major economic powers and can consequently look forward to a new wave of investment.

In conclusion I would like to express to you my gratitude and to convey to you greetings from former Presidents George Herbert Walker Bush and Bill Clinton who both asked me to wish your conference every success on their behalf.

I wish you productive meetings, discussions and new impressions!

Thank you for your attention!