ORDER OF THE GOVERNMENT OF THE REPUBLIC OF KAZAKHSTAN

of December 24, 2014 No. 1378

About approval of the Program for development of service industry in the Republic of Kazakhstan till 2020

The government of the Republic of Kazakhstan DECIDES:

1. Approve the enclosed Program for development of service industry in the Republic of Kazakhstan till 2020 (further - the Program).

2. To provide to the ministry of national economy of the Republic of Kazakhstan together with the central and local executive bodies proper and timely accomplishment of the actions provided by the Program.

3. Provide to responsible central and local executive bodies information on the program implementation course according to the Rules of development, realization, carrying out monitoring, assessment and control of the Strategic plan of development of the Republic of Kazakhstan, the state and government programs, strategic plans of state bodies, development programs of the territories, and also developments, realization and control of the Forecast scheme of territorial and spatial development of the country approved by the Presidential decree of the Republic of Kazakhstan of March 4, 2010 No. 931.

4. To impose control of execution of this resolution on the First deputy Premier-Ministra of the Republic of Kazakhstan Sagintayeva B. A.

5. This resolution becomes effective from the date of its signing.

Approved by the Order of the Government of the Republic of Kazakhstan of December 24, 2014 No. 1378

The program for development of service industry in the Republic of Kazakhstan till 2020

1. Passport of the Program

Name	The program for development of service industry in the Republic of Kazakhstan till 2020
Basis for development	The order of the President of the Republic of Kazakhstan of August 6, 2014 No. 01-7.9 (XT) (Item 3.1. 3); Strategy "Kazakhstan - 2050": new political policy of the taken place state; The concept on entry into number of 30 most developed states of the world approved by the Presidential decree of the Republic of Kazakhstan of January 17, 2014 No. 732.
State body responsible for development and program implementation	Ministry of national economy of the Republic of Kazakhstan
Purposes	Forming of competitive service industry by improvement of quality, availability, performance improvement and export of service industry
Target indicators	1. Labor productivity in service industry, tenge an hour. 2. Service industry share in GDP, %. 3. Quantity occupied in service industry, one thousand persons. 4. Export growth of services, % to the level of 2013.
Tasks	1. Development of the trade sector of service industry. 2. Development of services in the sector of transport and logistics. 3. Market development of tourist services. 4. Development of services in the sector of real estate transaction. 5. Development of professional services. 6. Development of services of the sector of information and communication. 7. Development of financial services. 8. Development of services in the sector of education. 9. Development of services in health care sector. 10. Enhancement of institutional bases of regulation of service industry.
Realization terms	2015 - 2019.
Sources and amounts of financing	Finance costs on program implementation are provided at the expense of the republican budget, and also at the expense of private means. The amounts of financing of the Program at the expense of the republican budget will be specified in case of approval of the republican budget for the corresponding financial years according to the legislation of the Republic of Kazakhstan.

 

2. Introduction

The program for development of service industry in the Republic of Kazakhstan till 2020 (further - the Program) is developed in execution of the order of the Head of state this at the enlarged meeting of the Government of the Republic of Kazakhstan of August 6, 2014.

In process of growth of well-being of nation the service economy begins to play key role in ensuring economic growth and employment. Recently industries of services exert decisive impact on economic dynamics as developed, and developing countries. The service industry contribution to economic growth advances contribution of industries of the real sector.

In service industry more highly skilled workplaces, than in other industries of economy are created. Considerable part of small and medium business performs the activities in service industry. The service industry renders the compensating role in case of employment reduction in traditional industries and agricultural industry.

Redistribution of human capital from less effective sectors in service industry increases performance of economy, the income of the population and productive employment. Involvement of the population in generation of economic growth within service sector allows to provide the principle of inclusivity.

In Kazakhstan the service industry constitutes nearly 54% of gross domestic product already today (further - GDP), but it is much lower than indicators of developed countries.

In Strategy "Kazakhstan - 2050": the new political policy of the taken place state" the Head of state effective objective to be among 30 most developed states of the world by 2050. Within Strategy "Kazakhstan - 2050" the service industry shall constitute about 70% of GDP.

Development of service industry will render multiplicative effect on real production sector, increase in competitiveness and export focus of economy in general.

Complex measures for development of sectors of service industry, and also for institutional development of service industry in general are provided in the Program.

The program is aimed at the development of the following 9 main sectors which make the main contribution to GDP: trade (% 15,4), transport and logistics (% 7,8), tourism (% 1,6), real estate transactions (% 8,6), professional services (% 4,3), information and communication (% 2,7), financial and insurance activity (% 2,8), education (% 2,9), health care (% 1,6).

Thus, the Program will add the measures taken within the existing programs (state programs of infrastructure development of "Nurla Zhol", development and integration of infrastructure of transport system, development of education, health care, the concept of development of the financial sector, development of tourist industry, the Road map of business 2020 and others).

3. The analysis of the current situation of development of service industries in the Republic of Kazakhstan

1. In Kazakhstan within the last 20 years the service industry advanced industry growth approximately by 3% and at the moment constitutes 54,2 of % of GDP (on the first half of the year 2014, growth on % 0,6). At the same time for achievement of the planned annual average growth rate of GDP at the % 5,8 level the service industry amount by 2020 shall be doubled that corresponds to annual average growth rate in 7%.

By data for 2013 the total volume of import to Kazakhstan constituted 62, 8 bln. dollars of SShA1, at the same time 19% fall to the share of services. Import of services was distributed as follows: professional services - 54%; transport and tourist services - 38%; financial and insurance services - % 2,7; telecommunication services, including services in the field of information and computer technologies - % 3,75; services in the field of public administration, education and health care - 1%.

Figure 1. Import of services to Kazakhstan, bln. dollars of the USA, 2013

Source: National Bank of the Republic of Kazakhstan

According to KS MNE in 2013 from the country it was exported goods and services for the total amount of 89 972 mln. dollars of the USA, at the same time the share of services constituted only 6%.

Export of services was distributed as follows: transport and tourist services - 82%, other business services - 9%, the state services - 4%, telecommunication services, including services in the field of information technologies - 3%, financial and insurance services - 1%, other services - 1%.

Figure 2. Export of services from Kazakhstan, bln. dollars of the USA, 2013

Source: KS MNE

Annual average growth rate of sectors of service industry is higher, than in other industries which are not relating to service industry, except for the sector of education.

The service industry provides the greatest share in GDP of Kazakhstan and will become the leading factor of growth in the short term. Already now the big share of GDP is the share of service industry. However, to enter 30-ka of the most developed countries of the world by 2050, the service industry shall grow in time 1,7 by 2020 and make the main contribution to GDP growth. Thus, by 2020 growth of amount of GDP of the country to 369, of 9 bln. dollars of the USA is predicted, at the same time the amount of service industry will make 231, 9 bln. dollars of the USA.

Figure 3. Structure of GDP of Kazakhstan

Source: KS MNE

For determination of potential of growth each of sectors of service industry was analysed from the point of view of strategically important parameters of industries of service industry:

1. Labor productivity of industries of service industry;

2. Employment (quantity of workplaces);

3. Investments into industries of services;

4. Service quality;

5. Availability;

6. Cost of services.

The parameters showing direct economic effect are the labor productivity, employment and investments. The analysis showed that trade which contribution to GDP following the results of 2013 constituted % 15,4 can serve as the most priority sector. On this sector till 2020 creation of 450 thousand additional workplaces and growth of investments by 65 bln. dollars of the USA is expected.

Figure 4. Opportunities for improvement and gap between the current and target indicators by sectors from the point of view of direct economic effect

Source: analysis of the International consulting company McKinsey & Company, JSC Institute of Economic Researches

The analysis shows that 5 of 9 sectors require significant growth in labor productivity for goal achievement by 2020 (financial and insurance activity, transport and logistics, professional services, education, health care).

Figure 5. Results of detailed productivity analysis of work on sectors

Source: analysis of the International consulting company McKinsey & Company, JSC Institute of Economic Researches

The labor market in Kazakhstan is characterized by high extent of regulation, process of the conclusion of agreements is in details regulated.

The main directions on performance improvement of work in service industry are ensuring market efficiency of work, development of professional personnel and migration of qualified resources.

On analysis results it is revealed that due to development of service industry till 2020 will be created by 831 thousand workplaces.

Figure 6. Results of the detailed analysis of employment on sectors

Source: analysis of the International consulting company McKinsey & Company, JSC Institute of Economic Researches

For achievement of target values of development of service industry the total requirement in investments till 2020 of all sectors of service industry constitutes 330 billion US dollars. In particular, considerable investments into transport and logistic infrastructure, and also into the real estate and objects of trade (more than 265 billion dollars) are necessary.

Figure 7. Detailed requirements analysis in investments by sectors

Source: analysis of the International consulting company McKinsey & Company, JSC Institute of Economic Researches

Quality, availability and cost (price) of services belong to strategically important parameters.

The carried-out analysis in these parameters shows that improvement of situation by these sectors requires acceptance of active measures and carrying out cardinal or gradual improvement.

Thus, in quality parameter in six of nine sectors (information and communication, financial services, trade, real estate transactions, professional services, education) cardinal improvements are required.

Figure 8. Opportunities for improvement and gap between the current and target indicators by sectors from the point of view of strategically important parameters

Source: analysis of the International consulting company McKinsey & Company, JSC Institute of Economic Researches

The comparative analysis of Kazakhstan with such countries as Brazil, Russia, China, Malaysia, Turkey and the Republic of South Africa (further - the Republic of South Africa) and target group on criteria of quality, availability and the price of services showed that Kazakhstan lags behind target group on all analyzed service sectors.

Also lagging from groups of comparison practically on all analyzed service sectors, except for health cares and telecommunications is observed. Thus, almost all sectors require significant increase in parameters of quality, availability and the price in comparison with group of the comparable countries.

Figure 9. Comparison of Kazakhstan with the comparable countries and target group on criteria of quality, availability and price of services in sectors

Source: analysis of the International consulting company McKinsey & Company, JSC Institute of Economic Researches

Thus, the comparative analysis of services of Kazakhstan with such countries as Brazil, China, Malaysia, Russia, Turkey and the Republic of South Africa by criteria of quality, availability and the price showed that in Kazakhstan seven of nine sectors (financial services, transport and logistics, trade, tourism, real estate transactions, professional services, education) show lower results in comparison with group of comparison.

1. Trade

The analysis of the trade sector showed that the labor productivity in the sector of wholesale and retail trade constitutes 28 thousand dollars of the USA and in case of preserving the operating tendency in 2020 can increase by 8 thousand dollars of the USA. For the last period annual average growth rate made 13%. The target objective of annual average growth rate of labor productivity constitutes 4%.

At the same time revenue level with 1 sq.m in Kazakhstan is comparable with indicators of target group of the countries.

Figure 10. Revenue on 1 sq.m of floor spaces, US dollar, 2013 god2

Source: KS MNE, www.euromonitor.com

The number of the retail chain stores working at the market of retail trade of Kazakhstan remains insignificant. So, from 4 264 shopping facilities only 407 treat network.

Figure 11. Dynamics of growth of floor spaces of the independent companies and networks, thousand sq.m

Source: DAMU Research Group, Agency of marketing and social researches

At the same time, the sector of trade needs considerable investments, the total requirement of the sector of wholesale and retail trade in investments constitutes 65 bln. dollars of the USA. The analysis showed that the current level of ratio (2013) of investments into the sector and GDP of the sector constitutes only 2%, at the same time the target objective for 2020 constitutes 15%. Thus, cardinal changes on increase in investments into this sector are necessary for goal achievement.

Despite considerable turnover, tax revenues in the budget from activities of open outlets are insignificant. Total revenue from one trade market can also be in limits of the amount, not taxable. Trade enterprises of other formats (for example, retail chain stores) are registered properly and differ in considerable total revenue on one shop.

Figure 12. Indicators of retail trade in Kazakhstan: turnover and tax revenues, one billion tenges

Source: analysis of the International consulting company McKinsey & Company, KS MNE

Professionalizing of the market of retail trade will allow to raise tax revenues, but at the same time can cause reducing employment.

The size of the market of retail trade of Kazakhstan is rather small in absolute expression, but its role gradually increases.

Figure 13. Size of the market of retail trade, bln. dollars of the USA, 2013

Source: KS MNE, www.euromonitor.com

The trade sector conforming to the international standards creates significant amount of workplaces and promotes forming of professional skills and innovative development. Retail trade is the main source of workplaces both on developed, and in emerging markets. According to Euromonitor International analyst company in Kazakhstan the share occupied in the sector of retail trade in the total number of able-bodied population constitutes % 14,5 whereas in comparable Turkey - % 9,5. In the developed markets of the USA, Canada and Australia this indicator varies ranging from % 8,6 to % 11,3.

In retail trade favorable conditions for the professional growth of employees are created today. However in shadow segment of retail trade or in the public markets workers have no such career opportunities.

According to large retail network Walmart of 75% of directors of the shops earning 50 000 - 170 000 US dollars a year began with the assistant's position with hourly pay. Every year 170 000 employees of the company are transferred to the positions assuming wider sphere of responsibility and more high salary.

In recent years entry into the market of Kazakhstan, first of all in such cities as Almaty and Astana, became one of the main priorities for the international retailers. The leading brands aim to use the benefits connected with rapid growth of middle class and development of infrastructure in the country with benefit. 2010 when the franchasing company FawazAlhokair brought the Zara brand and other InditexGroup brands to the market of the country became important. Development of the sector of retail trade was promoted by construction of new shopping centers and the entry of Kazakhstan into the Customs union with Russia and the Republic of Belarus. The main problem for the international brands is search of local partners and suppliers for business.

The trade markets still play important role in the market of retail trade of Kazakhstan.

Figure 14. Share of modern formats in sales of food, percent from total amount, 2013

Source: www.euromonitor.com

The share of modern formats of retail trade in Kazakhstan is characterized by rather low share - 29% of total amount whereas in the USA the similar indicator constitutes 85%, China - 64%, Russia - 61%.

According to Euromonitor International, the market of electronic commerce in Kazakhstan is developed poorly: its amount makes 130 mln. dollars of the USA. It is connected with insufficient prevalence of the Internet among the population - in the country of 54% of inhabitants use the Internet (for comparison, in Malaysia - 67%). But this indicator dynamically grows that opens opportunities for development of electronic commerce.

Figure 15. Retail trade on the Internet, percent from total amount, 2013

Source: KS MNE, www.euromonitor.com

In 2012 in Kazakhstan 447 violations of intellectual property rights are registered. Every year counterfeit products cause economic damage on the amount about 430 mln. dollars of the USA, at the same time it is source of the serious problems connected with safety and health of consumers, especially in cases of counterfeit of toys, alcoholic beverages and medicines. Serious problem is not receipt of tax assignments. Development of electronic trading in the country is complicated by mentality of the consumers who are afraid to acquire goods on the Internet.

The low share of trade on the Internet - 0,4 of % of total amount is observed (in China - % 5,6, in the USA - % 7,4).

The population scope differs with services of retail trade in Kazakhstan depending on the region. On average over the country per thousand of inhabitants 479 sq.m of such areas are necessary, and the ratio between the maximum and minimum indicators of regions exceeds 2,:: from 333 sq.m (Jambyl area) to 743 sq.m per thousand inhabitants (Astana). Average security of the areas of the trade markets is approximately at the level of 365 sq.m per thousand of residents of the country, but the dispersion of indicators is much more: from 109 sq.m (Pavlodar region) to 625 sq.m per thousand inhabitants (Almaty region).

Figure 16. Floor spaces in regions of Kazakhstan

Source: KS MNE

As a result of comparative price analysis in the markets, shops of step availability and supermarkets in Astana and Moscow, including by holding poll it was revealed that in Astana goods in the markets cost cheaper, than in supermarkets whereas in Moscow the markets are considered mainly as the minor channel.

For example, in Astana bottom prices on food are observed in the markets whereas top prices in supermarkets. In Moscow the opposite situation is observed - the most part of the analysed food cost most cheaper in supermarkets.

2. Transport and logistics

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