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Review on light industry in Kazakhstan: Import substitution, export and state support

Tuesday, 24 December 2019, 10:33:13

The development of light industry in Kazakhstan is today one of the priority areas, since the industry has social significance, ensuring high employment of the population. Today, the Government of Kazakhstan is implementing a number of measures to support domestic light industry: free economic zones, preferential taxation and lending, quotas and grants for training, and government investment. Read more about the measures for the industry development in the review by PrimeMinister.kz.

Kazakhstan's light industry has 1,044 enterprises. It employs 12.7 thousand people.

In January-October 2019, the volume of production of light industry increased by 18.9% and amounted to 87.5 billion tenge. Growth is observed in the production of textiles by 23.7% and clothing by 7.5%.

In January-October 2019, the main share in the production of light industry products is in the textile industry — 53% (46.1 billion tenge), followed by the production of clothing with a share of 37% (32.8 billion tenge) and the production of leather and related products products with a share of 10% (8.6 billion tenge).

The turnover of light industry in Kazakhstan for 9 months of this year amounted to $1.3 billion, an increase of 14.5% compared with the same period last year.

Import Substitution Measures: Project Office and Working Group

According to the Ministry of Industry and Infrastructure Development, over 11 months there has been an increase in import flows in all sub-sectors: in clothing production by 34%, in textile products by 13% and in the segment of leather and leather products by 35%. At the same time, the bulk of imports, as a rule, are shoes, men's and women's clothing, T-shirts, sweatshirts, suitcases, suitcases, handbags, suitcases and hosiery. If men's and women's clothing is mainly supplied from China, Turkey, Russia, Italy, then shoes and outerwear are from China and Russia, bags, suitcases, and handbags are from China, Russia, Italy and France.

Of course, the reason for the high demand for imported products is the low price. In this aspect, domestic manufacturers cannot compete with foreign products. Indeed, domestic enterprises have a need for raw materials of a certain quality and raw materials that are not produced in Kazakhstan. Thus, the final product becomes more expensive.

To solve the current problem, a project office for the economy of simple things, import substitution and export was created on the basis of Atameken NCE under the chairmanship of Deputy Prime Minister Roman Sklyar and Chairman of the Board of NCE Atameken Ablay Myrzakhmetov and Minister of Industry and Infrastructure Development Beibut Atamkulov .

At present, the Working Group has been created to analyze the commodity items acquired in the framework of public procurement and the procurement of the quasi-public sector for the possibility of import substitution through the organization of domestic production of similar products in a number of manufacturing industries, including light industry.

Export of Light Industry Products: 30 Enterprises Entering Foreign Market

The volume of exports of light industry products in 2019 shows growth. An increase in export deliveries is observed in the production of textiles by 21.5% and in the manufacture of clothing by 12%.

The main export items in 2019 were cotton fiber, textile materials, impregnated, coated or dubbed with plastics, bedding. The main exports of cotton fiber — to China, Moldova, Latvia, textile materials was carried out in China and Russia, bed linen — to Russia.

In Kazakhstan, only 30 light industry enterprises enter the foreign market. In general, about 10% of the light industry is exported.

According to the Ministry of Trade and Integration, today the main export markets are China (39.4%), Russia (37.4%), Kyrgyzstan (5.2%), Italy (4.8%), Lithuania (4.4%) ), Uzbekistan (1.5%).

There has been an increase in exports of goods such as: bags and sack packaging made of textile materials — by 98%, bed linen, tableware, toilet and kitchen linen - by 21.8%; non-woven materials — growth of 4.5 times, other shoes on the sole and upper of rubber or plastic — growth of 4.9 times; hosiery — by 44.5%.

The government annually provides budget funds for the provision of service support. So, following the results of 11 months of the current year, such measures were provided to 16 light industry companies (this is a reimbursement of costs associated with participation in trade missions, exhibitions, forums). Costs incurred by enterprises for advertising, rental of premises, warehouses, certification are also reimbursed. At the same time, the Ministry of Trade and Integration provides for reimbursement of up to 50% of transport costs to Kazakhstani companies that supply processed goods for export. This mechanism will allow Kazakhstani exporters to reduce production costs by up to 10%, as well as expand the geography of exports and the range of goods.

Starting from 2020, the Ministry of Trade and Integretion, together with QazTrade, will launch an export acceleration program aimed at escorting enterprises from production to shelves in foreign countries. The target group of the program will be food and light industry enterprises.

 

What Measures of Support for Light Industry Provided Today?

Currently, support for light industry enterprises is provided as part of systemic measures aimed at the manufacturing industry, such as promoting the export of products, stimulating increased labor productivity, promoting goods on the domestic market, implementing the Unified Support Program and developing the Business Roadmap 2020 business and others.

Baiterek National Management Holding JSC provides support by providing financial support to priority sectors of the economy, small and medium enterprises, and export activities of Kazakhstani enterprises.

Development Bank of Kazakhstan JSC provides lending services for investment projects and export operations, lending to current activities, intermediate and mezzanine financing, financing leasing transactions, as well as providing guarantees.

JSC Damu Entrepreneurship Development Fund provides support in the form of lending, subsidizing and guaranteeing loans.

JSC National Agency for Technological Development provided such support tools as innovative grants, project financing, financing through venture funds, the provision of technology business incubation services, the provision of design bureau services, and the provision of international technology transfer centers.

JSC Export Credit Insurance Corporation Kazakh Export acts as an export credit agency that creates financial mechanisms to support the access of Kazakhstani manufacturing products to foreign markets. The main activity of the organization is to provide manufacturing enterprises with insurance protection against the risk of non-payments in foreign trade operations and guarantees the security of export transactions.

Kazakhstan Center for Industry and Export QazIndustry JSC provides government support measures under the Rules for the provision of state support to subjects of industrial and innovative activity and the Productivity 2020 program. The main tools of the program are “Reimbursement of costs for the development and / or examination of a comprehensive plan for an industrial and innovative project,” “Reimbursement of expenses for increasing the competence of an enterprise,” “Reimbursement of costs for improving technological processes,” “Reimbursement of expenses for increasing the efficiency of production organization.”

The Chamber of Foreign Trade of Kazakhstan LLP, as part of the Exporter 2020 export development and promotion program, provides assistance in exporting Kazakhstani products.

In order to implement the Address of the Head of State to the people of Kazakhstan as part of the development of the “economy of simple things” of Oct. 5, 2018, the Government Decision was adopted to solve the problem of affordable lending. The purpose of the loan is to invest and replenish working capital with a 6% interest rate for the business.

A roadmap for the development of light industry for 2019-2021 has also been developed, which is approved by the Government. The roadmap provides for 52 measures to ensure the supply of raw materials to enterprises, the fight against illegal circulation of goods, increasing the share of Kazakhstani content, measures of economic incentives, as well as systemic support measures.

Special economic zone Ontustik was created by Decree of the President of the Republic of Kazakhstan dated July 6, 2005 No. 1605, the main purpose of which is to create conditions for the development of the textile and clothing industry and create prerequisites for the transition to the production of competitive high value-added goods. Investors are exempted from corporate income tax, property and land tax, customs duties for a period up to 2030.

 

Measures to Increase the Share of Kazakh Production in Light Industry

The Roadmap for the development of light industry for 2019-2021 provides a section on measures in the field of public procurement and increasing the share of Kazakhstani content.

Thus, target indicators have been set for local executive bodies to increase the share of local content in government purchases of light, furniture, and building materials.

For national holdings, national companies and legal entities affiliated with them, indicators have been set to achieve by 2021 the share of purchases of light industry from domestic producers at the level of at least 90%.

The goods of the light and furniture industry are included in the list of goods, works and services for which public procurement from July 1, 2019, is carried out by a competitive tender with preliminary qualification selection.

There is a requirement to provide an Industrial certificate for prequalification in public procurement, to establish exemptions from the national regime in public procurement for a period of 2 years.

 

Training for Light Industry

Currently, training with higher and postgraduate education for the light industry is carried out by eight higher educational institutions in the specialties "Technology and Design of Light Industry Products,” "Technology and Design of Textile Materials" at Auezov South Kazakhstan State University, Dulati Taraz State University, Shakarim Semipalatinsk State University, Rudny Industrial Institute, Almaty Technological University, Kazakh University of Technology and Business, Almaty University, Bolashak University.

In the 2018-2019 academic year, the reception was 501 people. The amount of the allocated training grant for this sphere is 467.

In addition, in the specialty “Technology and Design of Light Industry Products,” the number of graduates of the 2018-2019 academic year in undergraduate studies is 386, master's degrees are 14 (of which 10 are state orders), and one is a PhD student.

In the specialty “Technology and Designing of Textile Materials,” the number of graduates of the 2018-2019 academic year in the bachelor's program is 82 (of which 79 are state orders), 10 are master's degrees (10 of them are state orders), and 2 PhD students.

The abovementioned higher educational institutions determined the bases for professional practice and training for students in the relevant specialties: knitting factory of Alteks JSC, AZALA Textile LLP, Cashmere LLP, Mimioriki LLP, Semipalatinsk Leather and Fur Mill LLP, LLP Murager (Semey), apparel factory Educational and Production Enterprise of the Kazakh Society of the Deaf (Kostanay), LLP Production and Innovation Company ASTANAANA ltd (Nur-Sultan), Tarazbylgaryetik LLP, LLP Fiberglass Pipe Plant, Bota hosiery factory.

Training in the light industry is carried out in 89 educational institutions of technical and vocational education in 6 specialties and 11 qualifications.

The contingent of students in the field of light industry in VET educational institutions is 9,614 people, including 9,189 people by state order. In the context of specialties:

  • The processing technology of fibrous materials — 90 people, by state order — 90 people;
  • The technology for the production of skin products and ewes — 16 people;
  • Sewing industry and clothing modeling — 9,222 people, by state order — 8,928 people;
  • Textile production — 171 people, by state order — 171 people;
  • The technology of knitted, textile, haberdashery products — 25 people.

An industry council for the development of technical and vocational education and training for light industry has been created.

Taking into account the projects of the state program of industrial and innovative development of the country, professional standards have been developed for the priority specialties of light industry. An independent specialized center for the assessment and qualification of graduates of technical and vocational education in light industry has been created.

The state compulsory standard of technical and vocational education provides for an increase in practice, which will allow educational institutions to independently change the content of 50% of educational programs.

For the organization of professional practice and industrial training, relations are developing with the Atameken National Chamber of Entrepreneurs, regional chambers of entrepreneurs, associations of employers, associations of colleges of the Republic of Kazakhstan.

Light Industry Enterprises: There is Potential

The government pays special attention to the development of light industry. Prime Minister Askar Mamin personally controls the work of light industry enterprises. So, during working trips to the regions, the head of government checks the work of factories and plants. The current state of these enterprises and their achievements indicate that the industry has great potential.

For example, in March 2019, as part of a working trip to Shymkent, Prime Minister Askar Mamin visited the Ontustik special economic zone, where he examined factories for the production of domestic textile products. When examining the production process of factory tailoring of clothing items, leather products, footwear and its components Askar Mamin highly praised the quality of the products, and bought shoes made in Kazakhstan. A pair of new shoes costed the prime minister 12 thousand tenge.

In August 2019, Askar Mamin visited the largest manufacturing enterprise in the sewing industry of light industry LLP Global Overalls, where he purchased a jacket. For 19 years, the garment factory has been developing and manufacturing workwear for industrial sectors. Its capacity is 250 thousand products per year. About 157 people work in the workplace, among whom are people with disabilities, mothers with many children, women from vulnerable sectors of the population, young cadres, pensioners and pupils of the Center for Social Adaptation of Youth.

In October, as part of a working visit, the prime minister also familiarized himself with the activities of the Bolshevichka production cooperative. The main activity of the factory is the production of garments of various assortments, including: school uniforms, uniforms for the power structures of the republic, special clothes for oilmen, gas workers, railway workers, medical workers, etc. There is experience in exporting. All products are certified and are not inferior to analogues of imported products. 420 workers work at the factory, more than 90% are women. The annual output is more than 1 billion tenge. The company is equipped with high-tech equipment and highly qualified personnel.

Dec. 5, 2019, in Shymkent, with the participation of Prime Minister Askar Mamin, the ceremony of launching a spinning mill of Alliance Trade and Industrial Company LLP, a cluster that had been idle for several years, was held. The Uzbek association of light industry enterprises Alliance Textile invests in a production with a cotton fiber processing volume of 6 thousand tons per year.

Alliance TPK LLP will annually process 6 thousand tons of cotton fiber and produce 2,400 tons of carded yarn and 2,400 tons of combed yarn from it. The company intends to reach full capacity by April next year.

The factory was launched due to the fact that the Investment Fund of Kazakhstan JSC found an investor, investments came from Uzbekistan. The Uzbek association of light industry enterprises “Alliance Textile” created a joint venture. In accordance with the requirements of the Kazakhstan side and according to the business plan, the necessary investment volume is determined at $12 million. Some of them have already been invested.

The opening of the spinning mill was announced as the launch of the first stage of a textile cluster in Shymkent. Head of Government Askar Mamin, who participated in the official ceremony, recalled that an agreement on the joint launch of a textile cluster in Shymkent was signed June 22, 2019, as part of the XVIII meeting of the joint intergovernmental commission on cooperation between Kazakhstan and Uzbekistan.

The second, very important, stage will be the launch of another idle textile mill of Melange JSC. It is expected to increase investment by almost five times — up to $60 million. Today, a reconstruction plan has been prepared. Some parts have already been purchased. According to forecasts, after the launch of the entire textile cluster, the processing of Kazakhstan's cotton will double. According to the press service of the Shymkent akimat, this year in the southern region it is planned to reach 20% of raw cotton processing, in subsequent years — 50%, and in the future it is expected to bring this figure to 100%.


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