Kazak Economic Growth Has Upper Limits, Experts Warn

Lack of political freedom and an over-dependence on mineral resources could soon constrain further economic growth in Kazakstan, which currently has the fastest growth rate in the former Soviet Union.



On October 16, David Owen, a senior advisor with the Middle East and Central Asia Department of the International Monetary Fund, IMF, told a videoconference that the region’s economies continue to pick up, thanks mainly to inflows of foreign capital and increasing exports of natural resources.



Kazakstan’s gross domestic product is currently growing at around nine per cent a year in real terms - higher than Russian growth.



Despite the good news from the IMF, NBCentralAsia experts based in Kazakstan point to a more downbeat recent statement by Andrei Illarionov, former advisor to the Russian president. Speaking at a banking conference in Almaty in late September, Illarionov said there was a direct correlation between the level of civic and political freedoms, on the one hand, and the maximum attainable level of economic growth, on the other.



He takes that view that certain countries have no chance of growing beyond a ceiling defined by the extent of political freedom there, even if they are earning big revenues from mineral resources. Using data from various countries, Illarionov believes that even if Kazakstan succeeds with its plan of increasing oil exports by 100 or 200 per cent by 2015, and assuming that world oil prices remain as high as they are now, the country is unlikely to exceed a figure of 12,000 US dollars per capita GDP. The figure is currently put at 8,200 dollars, expressed in comparable terms (using purchasing power parity).



Petr Svoik, an economist based in Almaty, agrees with this assessment, telling NBCentralAsia, “It is a fact that economic stability and prospects are directly related to the degree of political and economic freedom.”



The rights watchdog Freedom House ranks Kazakstan as “not free” in its 2006 report, marking it six on a seven-point descending scale of political freedom.



According to Svoik, GDP growth in Kazakstan is derived from just two areas of activity: the sale of oil and gas and the reinvestment of the revenues in the consumer sector rather than in production. The consumer sector is supported by a giant, costly, non-productive infrastructure that owes its entire existence to high world energy prices.



Growth is constrained by the low level of economic diversification, and by a heavy reliance on high oil export prices. Oil revenues have increased by 400 per cent as a proportion of GDP over the last six years, and accounted for 30 per cent of total GDP in 2005.



In August, Kazak prime minister Danial Ahmetov highlighted the need to develop non-energy-related sectors of the economy, and warned that some of the signs of overheating were already in evidence: economic growth indicators that are greater when expressed in nominal than in real terms, rising inflation, and the money supply outstripping the production of goods.



Analysts interviewed by NBCentralAsia pointed out at the time that a policy of redirecting oil revenues into other sectors would have limited success, firstly because these other sectors remain uncompetitive, and secondly because the government has only a limited degree of control over what happens to oil industry revenues.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)