Post-Soviet Economic Developments

Post-Soviet Economic Developments

Until 1990, when the whole central planning system collapsed, Kazakstan was part of the Soviet command economy. Even at the time of the 1991 coup that led to independence, 43 percent of the republic's industrial capacity was under Moscow's direct control, 48 percent was under joint republic and union control, and only 8 percent was strictly under republic control.

Although economic production declined dramatically in the early 1990s, some indicators showed a slower rate of decline by early 1995. In 1994 GDP declined 25.4 percent compared with 1993, including drops of 28.5 percent in industry and 21.2 percent in agriculture. In January and February 1995, additional GDP declines of 18.8 percent and 15.8 percent occurred (against the same months in 1994); however, March 1995 showed an increase of 4 percent (against 1994), fueled mainly by an increase in industrial production. Agricultural production, however, continued to drop in early 1995; 1994 first-quarter production was 79 percent of the same period in 1993, and the first quarter of 1995 almost duplicated that decline.

Much of Kazakstan's economic future depends upon its ambitious three-stage privatization program, which began in 1992 and reached the end of its second stage in 1995. The Kazakstan State Property Committee has responsibility for all three phases. In the first stage, housing and small enterprises employing fewer than 200 people were privatized. Most conversions of small enterprises were accomplished by auction to groups of employees, often under the leadership of the incumbent manager. Housing, which by 1995 was nearly all in private ownership, was privatized either by giving the residence outright to its current occupant or by payment of government-issued vouchers. The second stage entailed the privatization of almost everything except the republic's mineral wealth and industrial plants employing more than 5,000 people (such plants accounted for most of Kazakstan's military-related industry).

Privatization of the largest state enterprises is the principal goal of stage three, which did not begin as scheduled in late 1995. Until that time, these enterprises were run as self-managing joint-stock companies in which the government of Kazakstan was the largest stockholder. This interim stage, which was considered beneficial, required preparation of profit-and-loss statements in anticipation of full commercial operation sometime in the future. Meanwhile, 3,500 medium-sized firms, including 70 percent of state-owned industries, were offered for sale in a mass privatization program beginning in April 1994. These firms could be purchased with government-licensed investment funds.

Under Kazakstan's privatization system, vouchers are issued to individual citizens. Vouchers then can be deposited in privatization investment funds, which in turn can buy up to 20 percent of large companies being privatized. The initial voucher issue reached an estimated 95 percent of citizens. After four auctions, in mid-1994 about 85 percent of forty-five small-to-medium-sized enterprises, mainly in light industry, machinery manufacturing, and fuel distribution, had been sold.

By the end of 1994, about 60 percent of enterprises were owned by individuals or cooperatives. (In 1990 the figure already had reached 40 percent, however.) The success of the privatization of small enterprises, together with the formation of new private enterprises, meant that in 1994 some 61 percent of retail trade occurred in the private sector, an increase of 17 percent over the 1993 figure. Large-enterprise privatization has been less successful, however. Nominally privatized enterprises often maintain close contact with government officials who permit firms to maintain outdated production practices and supply relationships, and even to keep unpaid workers on their rolls.

Distribution of vouchers among the 170 government-licensed investment funds also has been problematic. In 1994 and early 1995, twenty companies collected nearly 60 percent of the vouchers, while another nineteen funds accumulated more than 20 percent; half the funds received a total of only 4 percent of the vouchers. One fund, Butia-Kapital, received nearly 10 percent of the vouchers, the largest single holding. This fund was widely rumored to be controlled by a nephew of President Nazarbayev. Although proceeds from privatization amounted to an income of 242 million tenge for the state treasury in the first quarter of 1995, complaints persisted that objects of privatization were priced too low and that favored funds received "sweetheart" deals.

Privatization of land has been handled differently than that of industry because the concept of individual land ownership does not exist in Kazakstan. Individuals and corporations can purchase only the right to use the land, and that right can be resold. Initial sale prices of state land are determined by the State Committee on Land Relations and Tenure. Government efforts to legalize a private land market have been stymied by both Russian and Kazak groups, each fearing that the other might gain control of the country's agriculture. By June 1995, some form of ownership or management change had occurred in 1,490 state farms, about three-quarters of the total remaining in operation. Many state farms, or portions of them, were converted into joint-stock companies that retained the same group of occupants and state-dominated arrangements for supply and marketing as under the previous nomenclature. The creation of small, individually managed farms was uncommon because capital, inputs, equipment, and credit were in very short supply for individuals attempting to start agricultural enterprises.

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