Industrial policy and diversification in the economic development of Kazakhstan

This paper explains the role of industrial policy and diversification in Kazakhstan. The oil and gas sector has led Kazakhstan’s economic growth. Kazakhstan’s economic growth rate has been mediocre compared with its neighbouring countries. The government pursued market-based reform, privatization, and diversification. Although it has emphasized developing agriculture and manufacturing, development in sectors other than oil and gas has not been apparent. The dominance of the extractive sector suggests the existence of the Dutch disease. After explaining industrial policy measures, this paper evaluates the role of government policy and provides policy implications for developing countries. Although the government has tried to diversify from a heavy reliance on the oil and gas sector to the agricultural and manufacturing sectors, the diversification strategy has been unsuccessful overall. Kazakhstan’s government must pay more attention to improving human capital and raising R&D expenditure. Active government policy is needed to diversify FDI inflows by sector. The government must clarify the objective of SME promotion and fiscal incentives must be finely targeted, considering industrial policy objectives. Clusters must be closely related to the overall direction of the industrial policy. The government must establish other infrastructure that may attract foreign investors to value-added industries.