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Investment growth, increase in foreign trade and production of goods — about main economic trends in Kazakhstan

Wednesday, 10 June 2020, 19:21:40

At a reporting public meeting, Minister of National Economy Ruslan Dalenov spoke about the main results of the department in 2019 and for four months of 2020.

In his report, Dalenov focused on the main activities of the Ministry of National Economy. These are economic indicators, measures to restore economic activity, entrepreneurship, competition, regional policy, fiscal policy, as well as investments and public-private partnerships.

Key economic indicators

In 2019, GDP growth amounted to 4.5%, inflation — 5.4%, population income in real terms — 6.5%. Investments in fixed assets grew by 8.5%. Unemployment was at 4.8%. Export amounted to $58 billion. In general, foreign trade turnover reached $96 billion.

“In general, in the world economy since the beginning of this year, there has been a decrease in business activity against the background of protective quarantine measures. There is also a decrease in the trade of main exchange commodities,” the minister informed.

According to the results of four months of this year, the results of the country's socio-economic development are as follows: GDP decreased by 0.2%. At the same time, the production of goods increased by 5.8%. At the same time, production of services decreased by 4%. As a result, GDP as a whole fell by 0.2%. Annual inflation in May accelerated to 6.7%.

The growth of investments in fixed assets in real terms amounted to 0.9%. This is lower than last year. However, positive growth remains. In order to attract investment, new approaches are being developed.

In January-April of this year, exports amounted to more than $18 billion.

Measures to restore economic activity

As noted by Dalenov, in order to restore economic activity, urgent, operational measures were taken, as well as a Comprehensive Plan by the end of 2020.

First. On behalf of the Head of State, the government adopted two packages of urgent, operational measures to support the economy.

Thus, exemptions and deferrals for taxes and social payments in the areas of micro, small and medium-sized businesses were granted. These are catering, agribusiness, trade, shopping and entertainment centers, hotels, tourism, IT companies and other services.

The instruments for preferential lending to SMEs have expanded significantly. The volume of lending increased by 1 trillion tenge. This is an additional 400 billion tenge under the Economy of Simple Things program and a new 600 billion tenge through the National Bank.

The programs Business Roadmap and the Economy of Simple Things have significantly expanded the coverage of industries. The final rate for borrowers is 6%.

A new Employment Roadmap is being implemented, which will allow for the modernization and reconstruction of infrastructure and provide employment.

To prevent the growth of the debt burden of SMEs, deferrals on repayments of principal and interest on loans for 90 days were provided.

For domestic producers, public procurement procedures have been simplified.

Second. May 20, 2020, a Comprehensive Plan for the restoration of economic growth by the end of 2020 was adopted.

The plan was developed by the government together with the National Bank, Atameken National Chamber of Entrepreneurs and business associations. All proposals of sectoral state bodies, Atameken NCE and business associations were considered.

The plan covers specific applied measures. This is the creation of the Industrial Development Fund. It provides loans to manufacturing enterprises at a preferential rate of 3%.

With the support of SMEs, through the National Bank's program and through Business Roadmap-2025, activities are expanding and lending procedures are being simplified. Also in the state program Business Roadmap-2025 there will be a new direction, microcredit, providing for subsidizing microloans for business, so that the rate is not more than 6%. All these measures are aimed at minimizing the negative consequences of external shocks.

Also, the Comprehensive Plan will allow solving operational issues in economic sectors, supporting domestic production and entrepreneurship. Thus, they will contribute to the restoration of economic activity.

The plan covers 164 agreed measures in 10 directions. This includes the development of SMEs, employment, support for the service economy, attracting investments, ensuring macro stability, the agro-industrial and mining-metallurgical complexes, the construction industry and the manufacturing industry, as well as civil aviation and tourism.

In general, 49 legislative acts are being amended today in the implementation of the Comprehensive Plan.

Small business entities operating in 29 economic sectors received tax benefits

“The issue of entrepreneurship development is one of the main priorities. The development of SMEs is the main factor in diversifying the economy, ensuring employment, macroeconomic stability, as well as the production of goods and services,” noted Dalenov.

Unfortunately, restrictive quarantine measures had a direct impact on SMEs, especially on micro-business.

Therefore, tax incentives have been provided to support SMEs, lending is expanding, and measures are being taken to further facilitate the business environment.

This year, tax incentives have been taken for businesses aimed at supporting the most affected SME sectors.

Until June 1, 2020, a delay has been introduced for all small and medium-sized businesses to pay all taxes and social payments (from March 27, 2020). In the most vulnerable sectors of the economy, the property tax rate was zeroed by the end of the year (from Jan. 1, 2020).

In the field of agriculture, incentives are also provided. For agricultural producers on agricultural lands, the land tax rate was reduced to zero by the end of the year (from Jan. 1, 2020).

The VAT rate has been reduced from 12% to 8% for the sale and import of socially significant food products until October 1, 2020 (from March 27, 2020).

In the field of livestock breeding, import is possible to pay VAT by offset, that is, without the diversion of working capital (from May 5, 2020).

In the most affected sectors of the economy, from April 1 to Oct. 1, 2020, zero rates on taxes and social payments from the wage fund were set. These are 0% individual income tax on salaries, compulsory pension contributions, social tax and social security contributions, compulsory health insurance contributions.

Benefits cover 29 types of activities of small and medium-sized businesses.

Also, the minister added, an important support for micro and small businesses was the implementation of the initiative of the Head of State announced last year.

On behalf of the Head of State, in 2019, the legislative framework for exemption from tax on income of micro and small businesses was adopted. This applies to businesses applying a special tax regime. The exemption is valid for 3 years for 2020, 2021, 2022.

“As a result, more than 1 million micro and small business entities will save about 382 billion tenge in taxes over three years,” noted Dalenov.

A set of measures has also been taken to expand business access to financing, since it is the availability of loans and collateral ‘’that is a factor in the development of SMEs, especially micro-business."

"Therefore, a new direction will be included in the Business Roadmap-2025 State Program — micro-lending to small and micro-businesses. Financing will be available at a rate of not more than 6% through subsidies. Today, the rates on such loans are high. The new direction will allow you to get loans at a rate of 6%. Loans will be issued up to 5 million tenge to replenish working capital and up to 20 million tenge — for production needs. This will allow to cover a wide circle of micro business representatives,” Dalenov emphasized.

In this case, the issue of providing collateral is decided. Damu Fund will guarantee up to 85% of the principal loan debt.

Consideration of micro and small business projects will be accelerated through simplification of approval procedures.

The new direction requires amendments to the Business Roadmap-2025, as well as procedures and the involvement of second-tier banks. Therefore, it is planned to launch a new microcredit line within a month.

More than 30 thousand entrepreneurs trained in 2019

In general, the Ministry of National Economy implements a number of programs to support SMEs: Business Roadmap, Enbek and Economy of Simple Things.

Over the past year and 4 months of this year, the programs provided financial support for more than 6 thousand projects:

  • in the second direction of the Enbek Program (microloans in cities), more than 1,700 microloans in cities were issued worth about 20 billion tenge (6% rate);
  • in the Economy of Simple Things, 1,400 projects worth more than 185 billion tenge (6% rate) were funded;
  • 3,100 projects for 197 billion tenge (average rate — 8.5%) received financing under the Business Roadmap.

Along with financial support, entrepreneurs received training in functional areas of the business, and also received service support.

So, in 2019, more than 30 thousand entrepreneurs were trained.

Of these, about 1,200 increased their competence, 29 thousand learned the basics of entrepreneurship.

Service support was provided to 43 thousand entrepreneurs for 55 thousand services. This is accounting and tax accounting, legal and marketing services, as well as documentation support. Currently, new training modules are being prepared that will allow receiving consultancy services remotely and online.

Facilitating business conditions

To implement the order of the Head of State to reduce the administrative burden and ease of doing business, a moratorium has been introduced on conducting inspections, control and supervision (with visits) in relation to micro and small business entities.

As a result of the introduction of a moratorium, over 100 thousand inspections will not be conducted within three years. This will reduce the administrative burden and will contribute to the stability of doing business. The 8th package of legislative measures to improve the business climate has been developed.

To implement the reform of control and supervision activities and improve legal literacy, a single day was held for the first time on the report of the regulatory authorities to the business community. Report day is planned to be held annually.

Mechanisms of the principles of “presumption of integrity of entrepreneurs” and “transition period” have been developed. That is, all the ambiguities and inaccuracies in the legislation are interpreted in favor of entrepreneurs, as well as changes that affect entrepreneurship are not introduced immediately, but have a transitional period.

International ranking results

The Doing Business international rating positively evaluated the ongoing work to improve the business environment in Kazakhstan.

Today, Kazakhstan ranks 25th in the ranking. It is important to maintain and improve this position. This is not done for the sake of numbers. Maintaining a high position means continuous improvement of legislation for the development of entrepreneurship.

The leading indicators are the enforcement of contracts (4th place), the protection of minority investors (7th place) and the registration of enterprises (22nd place).

At the same time, they need to improve the direction of international trade (105th place), connect to the power supply system (67th place), and resolve solvency (42nd place). Work in this direction is being carried out.

SME share in the economy

In 2019, the share of SMEs in GDP amounted to 30.8%. In 2015, this indicator was 24.9%. Ministry of National Economy sets a goal to increase the share of SMEs in the economy to 35% in 2025.

The number of people employed in business is increasing annually. Today it is 3.4 million people.

Competition — basis for quality economic development

In order to create conditions for fair competition, the Ministry of National Economy is taking systematic measures. This is the removal of barriers to business in the market and a decrease in the share of state participation.

To remove barriers to entry into the markets and stable business operation, the second stage of the audit of legislative norms that impede the development of competition was carried out.

Seventy-three potential competition constraints have been identified. This is a non-competitive selection of market entities, the provision of exclusive rights, special legal status to market entities.

Corresponding amendments to eliminate these restrictions are included in the draft law on improving the business climate.

Active work is underway to reduce the permitted activities for government organizations.

The activities of quasi-state companies were reduced by one third (107 types). This allowed transferring more than 200 billion tenge to the competitive environment.

The analysis of 20 key product markets. Seven factors distorting competition have been identified.

The Competition Development Roadmap has been approved, which envisages 104 events.

The reduction in the state’s share is carried out as part of the Comprehensive Privatization Plan. The privatization plan has been implemented since 2016. On the whole, the results of the implementation of the Comprehensive Privatization Plan showed positive dynamics.

As practice shows, the smaller the state’s participation in the economy, the more efficiently the market functions and the higher the level of competition. In most OECD countries, government participation in the economy is low.

In 2019, state participation in the economy is estimated to have decreased to 16%. This indicator is calculated as the sum of the gross value added of manufactured products by companies of the quasi-public sector, which is then divided by the country's GDP.

In 2019, more than 4 thousand specialists began working in villages

As noted by Ruslan Dalenov, the balanced development of regions is an important task. The main emphasis in regional development is on supporting villages. These are the projects “Aul - El Besigi” and “With a diploma - to the village.” Support villages are determined taking into account the existing potential in the long term.

Projects are also being implemented in mono- and small towns. Measures are being taken to improve the outskirts of large cities.

Aul - El Besіgі

Since 2019, on the initiative of Elbasy, the project “Aul - El Besigi” has been implemented. It is aimed at improving the quality of life in rural areas, modernizing and building the infrastructure of rural areas.

In 2019, about 520 projects worth 34 billion tenge were implemented in 53 villages under the Aul-El Besіgi project.

These are rural roads, schools, hospitals, polyclinics, lighting, sports grounds, fitness centers and other infrastructure facilities.

For 2020, funding increased by three times, the number of villages reached — 4 times. This will make it possible to implement 920 projects for 98 billion tenge in 216 villages for Aul - El Besigi.

In general, by the end of 2027, the necessary measures will be implemented in 3,561 villages.

With a Diploma - to the Village

To attract specialists to the countryside, the project “With a diploma - to the Village” is being implemented.

Last year, more than 4 thousand specialists began working in 1,200 villages. These are teachers, doctors, cultural and sports workers, as well as veterinarians and agronomists.

They receive state support in the form of a budget loan for housing. Its maximum amount is increasing annually. Today it is 4.1 million tenge (1,500 Monthly Calculation Indexes). The lending rate is only 0.01% with a loan term of 15 years.

Lifting amount is also provided for youth moving to rural areas.

This year, measures of social support in the form of a budget loan for housing will cover another 5,000 young professionals. On behalf of the Head of State, within the framework of the Year of Youth, the volume of financing was increased by a quarter and this year amounts to 20 billion tenge.

In 2020, 8.8 billion tenge was allocated for the development of mono- and small cities

“Particular attention is paid to the development of single-industry towns and small towns. In total, the country has 27 single-industry towns and 41 small towns. A total of 2.3 million people or one fifth of the country's total urban population live in them,” the minister informed.

Typically, in such cities, the economy depends on one or more large enterprises. Or the population of the city is small.

In 2019, 10 billion tenge was allocated, 17 monotowns and 9 small cities were covered. They implemented 46 projects, of which 18 on the construction / reconstruction of intra-city streets, 28 — on the construction / reconstruction of engineering networks.

In 2020, 8.8 billion tenge was allocated. 26 projects are being implemented in 16 single-industry towns and 5 small towns.

Developing outskirts of large cities

Today, the outskirts of large cities Nur-Sultan, Almaty and Shymkent are actively developing.

“There is an urgent issue of providing the growing population with roads, schools, hospitals and water supply, as well as utilities. Therefore, measures are being taken to develop the outskirts of three large cities,” said Dalenov.

In 2019, 55 projects were implemented.

In the outskirts of Nur-Sultan, a clinic was built, 34 km of roads and 81 km of engineering networks were built or reconstructed.

In the outskirts of Almaty, 4 schools were built, 36 km of roads and 33 km of engineering networks were built or reconstructed.

In the outskirts of Shymkent, 9 km of roads and 165 km of engineering networks were built or reconstructed.

This year it is planned to implement 56 projects. These are 23 road projects, 7 projects in the field of education and 1 in healthcare and 3 sports facilities, as well as 22 projects in engineering networks.

The total amount of projects for two years will be 56 billion tenge.

The government intends to expand the project "Budget for public participation" to all cities of regional significance

According to the order of the Head of State, in order to widely involve the population in the decision-making process, the implementation of the “Hearing State” concept provides for the implementation of the Participation Budget project, introduces independent rural budgets and generally takes measures to improve the stability of the budget system.

Public Participation Budget

The Participation Budget project is one of the tools for expanded citizen participation in the budget process as part of the “Hearing State” Concept.

This mechanism works as follows. A contest of ideas is being held. Through a web portal, residents of a particular district can propose a project to the district akimat.

The applications received are analyzed, then an open vote “1 resident - 1 vote” is held. Based on the results of voting, the expert community determines the priority of the project for financing. On the website of the district akimat you can see for which project and how residents voted. The photo, status and author of the projects are posted. The author of the project may be a resident of residential building.

To date, the project Participation Budget is being implemented in pilot mode in eight districts of Almaty and the Saryarka district of Nur-Sultan.

In 2019, about 1.5 billion tenge was distributed by residents of these cities, 69 yard improvement projects, installation of courtyards and sports (work-out) venues were approved.

This year, work is underway to implement the Participation Budget in other cities of regional significance. Today it is being introduced in 55 cities of regional significance.

Independent rural budget. New IV budget level

An important point in the implementation of the Concept of the “hearing state” is the development of local self-government.

The key element is the existence of an independent budget for the rural district.

Since 2020, a new IV budget level has been introduced. These are the budgets of villages, towns, rural districts. A key feature of this reform is the participation of the population in resolving issues of local importance.

“Previously, the budgets and expenses of villages were formed by the higher district budget, without the participation of residents of these villages. Now, local people take part in determining funding priorities. Citizens are given the opportunity to participate in the financial management process. At meetings of the local community, planned events are discussed with residents and priority projects are identified,” the minister noted.

The introduction of budget level IV allows the local community to independently determine funding priorities. Since Jan. 1, 2020, the local government budget has been introduced throughout the country and operates in 2,353 administrative-territorial units.

As a result of the introduction of an independent rural budget, the financial capabilities of rural districts were expanded. Since 2018, the village budget has grown by 34.4 billion tenge.

The role of the population in solving local issues has been strengthened. 5.8 thousand gatherings were held with the participation of 270 thousand people and 7.7 thousand meetings, where 165 thousand people were present. The level of responsibility and competency of the apparatus of akims of rural districts has been increased.

Transparent budget

Since Jan. 1, 2020, a very important reform in intergovernmental relations has been carried out. Corporate income tax revenues from small and medium-sized businesses began to be credited to local budgets.

“Why is it important to transfer SME corporate income tax from the republican budget to local budgets? This is not a technical redistribution of funds between budget levels. This innovation stimulates the increase of business activity in the regions, the development of SMEs and the regional economy as a whole,” the minister said.

In order to increase the stability of the budget system, legislative amendments have been prepared to consolidate the countercyclical budget rule.

The essence of this rule is to save money in the National Fund at high oil prices.

Also, to simplify budget processes, procedures for budget execution and budget application preparation have been improved. This is automation and digitalization of budget processes, as well as increasing the openness and accessibility of information.

In this regard, to further improve the budget system, a draft law has been developed on improving budget legislation.

Over 2 thousand investment projects implemented in Kazakhstan in five years

The Ministry of National Economy of Kazakhstan has set an ambitious task to increase the level of investment in GDP to 30%.

To achieve this goal, the following work is underway.

Fundamentally new approaches to attracting investments have been identified - direct work with investors to form integral value chains.

Amendments were made to the legislation to ensure stability of conditions for strategic investments in priority sectors of the economy.

It is planned to actively use the potential of the Astana International Financial Center to attract investment.

A pool of investment projects for 5 years has been formed. The pool consists of more than 2 thousand investment projects worth 44 trillion tenge.

The ministry conducts monthly monitoring of the achievement of targets for investments in fixed assets.

Proactive work continues with central and local executive bodies for the prompt resolution of problematic issues at the Coordination Council for Attracting Investments.

In order to increase the effectiveness of monitoring work to achieve investment targets, field events will be held in the regions.

Investments are the key to sustainable and quality economic growth.

Developing public-private partnership

To date (2005-2019), 755 PPP agreements have been concluded in the amount of 1.6 trillion tenge, of which in 2019 — 277 contracts worth 184.4 billion tenge.

Over the entire period, 578 facilities were built using PPP mechanisms, including in the field of education — 347, healthcare — 124, energy and utilities — 31, transport and infrastructure — 20, culture and sports — 33, housing and social facilities — 13, others — 10.

As noted by Dalenov, today an important task of the ministry in the framework of the execution of instructions of the Head of State is to formulate a new edition of the Strategic Plan for the Development of the Republic of Kazakhstan until 2025.

In this regard, measures will be worked out to form a new economic structure. The main emphasis will be on building up domestic production, diversifying the economy, manufacturing high value added products, ensuring food security, digitalization, attracting a new wave of high-quality investments, increasing export potential and developing SMEs.

The strategic plan will be a response to the new economic reality and determine the country's new economic course for the medium term.

Summing up the results of the reporting period, Ruslan Dalenov emphasized that, on the whole, the ministry has done a lot of work.

“In today's difficult situation, work will continue to create the necessary conditions for economic recovery. We will make every effort to ensure socio-economic stability in the country,’’ Dalenov said.

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