The President of Kazakhstan Nursultan Nazarbayev’s

Address to the People of Kazakhstan from 31.01.2017

`Third Modernization of Kazakhstan: Global Competitiveness`

On the threshold of the new area I address to the people of Kazakhstan.
The country has passed its 25-year development stage honorably. We are proud of our country. Within celebration of the 25th anniversary of Independence we have highlighted Kazakhstan’s achievements and progress. They are well known and appreciated by the world community.
Kazakhstan has become the non-permanent member of the UN Security Council since the beginning of 2017.
The international exhibition «EXPO-2017» will be held in Astana this year. We are the first among the CIS countries and Central Asia to hold such important global event.
Sports events have started in Almaty within the Universiade-2017. Over 2000 sportsmen and members the delegations from 57 countries take part in it.
All this is the result of a correct political path and high authority of Kazakhstan in the international arena.
Kazakhstan will be among the top 30 developed countries by 2050. We surely go to this purpose.
Relevance of the Strategy-2050, proposed by me to the people in 2012 is increasing in conditions of growing competition and lack of stability in the world. We have been able to timely anticipate the forthcoming hard time.
Due to the economic policy «Nurly Zhol» and Plan of Nation «100 specific steps» we are going through the initial stage of the complex global transformation worthily. KZ 1.7 trillion has been allocated additionally in 2014-2016 to support the economy. All that provided an opportunity for the economic growth and business support, creation of more than 200 thousand new workplaces.
The result ensured the gross domestic product growth by 1% in 2016. It is important in the current difficult conditions.
The world situation is changing rapidly. This is a new global reality and we have to accept it.

Dear Compatriots!

Only those nations, which manage to get ahead of the future and meet the challenges decisively without standing and waiting, are the winners.
The next fourth industrial revolution starts in the world.
Universal economic digitalization will lead to disappearance of the industries and creation of fundamentally new ones. Great changes before our eyes are both a historic challenge and opportunity for the nation.
Today I set the task to carry out implementation of third modernization of Kazakhstan. It is necessary to create a new model of the economic growth that will provide the country’s global competitiveness.
Today, many countries try to solve the same problem. I am sure that transition to the new growth model will be different. We should us our strong points and not to lose the potential that we have created together for 25 years of our Independence.
We all remember the first modernization of Kazakhstan, start of our way 25 years ago on the ruins of the Soviet Union. Then from the foundation our generation created a new state, which was not on the world map.
There was a transition from the planned to market economy. It is crucial for me that we together have managed to hold the country from the turmoil of internal conflicts, civil war and economic collapse. Kazakhstan came out of that period with minimal losses and largest acquisitions.
The second modernization started with adoption of the Strategy-2030 and creation of a new capital city Astana. The results are undeniable. The country broke away from the economic crisis zone and joined the world’s 50 most competitive economies.
Two successful modernizations have given us the invaluable experience. Now we need to step forward boldly and start the third modernization.
This modernization is not the plan of fight with the current global challenges but a reliable bridge to the future to the objective of the Strategy-2050. It will be held on the basis of the Plan of Nation «100 Specific Steps».
I see its five key priorities. They are designed to ensure the economic growth above the world average and steady advance to the top 30 leading countries.
The first priority is the accelerated technological modernization of the economy.
We should cultivate new industries, which are created with use of digital technologies. It is the important complex task.
It is necessary to develop such advanced sectors in the countries as 3D printing, online commerce, mobile banking, digital services, including health, education and others. These sectors have already changed the economic structure of the developed countries and gave a new quality to senile industries.
In this regard, I charge the Government to work out and adopt a separate program called «Digital Kazakhstan».
It is necessary to fit our legislation to the new realities.
It is also important to make provision for the development of communications and ubiquitous access to the fiber-optic infrastructure. Development of the digital industry will give the impetus to all other sectors. Therefore, the issue of IT-sphere development should be kept under special control of the Government.
The factor of great significance in forming new industries is support of innovations and fast introduction into production.
I entrust the Government to create IT-startup International TechnoPark on the basis of one of EXPO-2017 facilities. It has to become a platform for involving entrepreneurs and investors from around the world. This requires the appropriate infrastructure and favourable conditions including fiscal incentives, simplified the visa and labor regimes.
We also need to develop the research and innovative potential in the universities, Nazarbayev University and «Alatau» Innovation Park.
The second complex task. In parallel with creation of new industries, we should give impetus to the development of traditional basic industries.
They are industry, agriculture, transport and logistics, construction and other sectors.
First, it is important to increase productivity.
The main factor here should be the widespread introduction of elements of the fourth Findustrial revolution. They are automation, robotics, artificial intelligence, exchange of «big data» and others.
I charge the Government together with business to work out a package of measures of technological re-equipment of the basic industries until 2025.
Second, it is necessary to continue industrialization with emphasis on the development of competitive export industries in the priority sectors.
The Government has already the task to increase non-recourse exports in half by 2025.
To activate the work in this direction we need to concentrate the instruments of development and promotion of exports in the one department. It is necessary to support exporters on the principle «single window», including in the regions.
I entrust the Government to create a Council for export policy. It should include the business community representatives.
The Government, akims and businesses need to develop a unified export strategy until September 1,2017.
Kazakhstan should keep the leading position in attracting foreign investment. The international financial center «Astana» should play an important role in attraction of financial resources in the economy of the country.
It is critical to fit into global chains of production and distribution of goods and services. It should be done primarily by attracting multinational companies.
It is necessary to implement the joint investment program with China effectively to establish production facilities in Kazakhstan. The agreements have been reached with China. The facilities have been identified. We need to work specifically.
That will be modern productions with creation of 20 thousand new workplaces for Kazakhstani. Today, six projects have started implementing and two projects have been already launched. One of them is the plant for large-assembly of hybrid and all-electric vehicles JAC.
I entrust to study the issue for further development of electric vehicle production with export orientation, making necessary infrastructure.
In general, Kazakhstan should have its own investment strategy. The government should prepare it before September 1,2017.
It is necessary to protect and promote the national economic interests within the international cooperation. This includes, before everything else, the work within the EAEC, SCO, interfacing with the Economic Belt of the Silk Road. Economic diplomacy work will be rebuilt and strengthened.
Third, ore mining and smelting, oil and gas complexes of the country have to retain its strategic importance for sustainability of the economic growth.
In the context of slowdown of the global demand it is necessary to enter new markets and expand the geography of supplies. We should pay great attention to expanding the mineral resource base. We need to carry out an active geological exploration.
Further development of these industries should be strictly linked to deepening the complex processing of raw materials.
I charge to adopt a new Code of mineral resources and make necessary amendments to the tax legislation by the end of the year.

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Fourth, the agricultural sector shall become the new driver of the economy.
The agro-industrial complex of Kazakhstan has the promising future. In many items, we can be one of the world’s largest manufacturers of agricultural exports, especially for organic foods. The brand “made in Kazakhstan” will become the standard of such products.
At the same time we have to be so-called «bread basket» for production of grain in the Eurasian continent. We need to transit from primary production to the production of high-quality and processed products. Only then we will be able to compete in the international markets.
In this regard, I entrust the Government and akims the following:
Firstly, it is necessary to reconsider the principles of allocation of subsidies and start using production insurance;
Secondly, all conditions for combining more than 500 thousand households and small farms into cooperatives will be created for 5 years;
Thirdly, we need to increase the level of processing of products and create the effective system of storage, transportation and distribution of goods;
Fourthly, the level of labour productivity will be increased and production costs will be reduced;
Fifthly, we have to improve the efficiency of land use. It is necessary to increase the area of irrigated land by 40%, thereby to reach 2 mln hectares for 5 years;
Sixthly, we need to increase the investment volume in agricultural research which will be in demand in the business environment.
I charge to increase the export of food products by 40% by 2021 through diversification of agricultural products.
These tasks should be fulfilled within the new state program for the development of the agricultural complex.

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Fifth. Development of the new Eurasian logistics infrastructure development is one of the important priority.
Key investment has already been made. Now it is necessary to have economic returns.
I entrust the Government to provide an increase in the annual volume of transit traffic by 2020:
— 7 times for cargo, carried in containers — up to 2 mln containers;
— 4 times for passenger transportation by air — up to 1.6 mln transit passengers.
It is necessary to increase earnings from transit traffic in 5.5 times — up to $ 4 billion a year.
In 2015, I initiated the program of infrastructure development «Nurly Zhol». The program has implemented successfully for the last two years.
4400 km of republican roads will be constructed and reconstructed this year. Among them, no less than 600 km will be repaired before the end of the year.
Coordination with the neighboring countries is necessary to unlock the country’s transport and transit potential. We need to ensure the goods transit freedom, creation and modernization of transport corridors. Particular attention should be paid to the transport infrastructure management, increase of a service level and elimination of administrative barriers.
Due to the increasing the traffic volume along the Trans-Caspian corridor it is necessary to implement the second phase of construction of the Kuryk port — a car way.
Sixth. The processes of urbanization necessitate the development of the construction sector. It will become a full driver of the domestic economy.
It is important not to forget that investing in construction of the roads, houses and other infrastructure we define the physical and technological shape of our cities for years to come. Therefore, we should ensure the transfer of the latest technologies both to construction and manufacture of building materials. Now we have good opportunities for it.
The housing program «Nurly Zher» will be implemented since this year. It is aimed at solution of the main tasks – to provide 1.5 mln of families with housing in the coming 15 years.
The program includes comprehensive measures for the development of the housing market. It is cheaper bank loans for constructors by providing grants through «Damu» JSC. Subsidizing the mortgage credits, offered by banks for population will made through «Kazakhstan Mortgage Company» JSC. Akimats continue construction of credit housing for ZhilstroySberBank depositors. Previously allocated funds on the «revolving» principle will be reused for that purpose.
Akimats will continue developing rental housing without the right of redemption for vulnerable social groups. Akims should allocate appropriate land for mass housing.
We will try that individual houses in the cities will be constructed in one architectural style. The state will assist with necessary infrastructure.
The Government and akims should take measures for the development of transport links with the neighboring settlements.
The third complex task is modernization of the labor market.
Human resources will become available with introduction of new technologies in the senile industries. However, creation and development of new industries should be the additional source of employment and growth of real income.
I charge the Government and akims to create conditions for a controlled flow of workers into other sectors.
Our large enterprises should, jointly with akimats, to develop the appropriate «road maps». They need to provide co-investment in retraining of dismissed workers and their further employment. We need to support the labor mobility processes from labor-surplus regions and from rural areas to the cities.
The Government should reform the employment centers and create a single online platform for all vacancies and all settlements.
The second priority is massive improvement and expansion of business environment.
One of our strategic goals is ensuring the contribution of small and medium-sized business in GDP not less than 50% by 2050.
It is the ambitious but achievable goal. To achieve it at this stage we need the following.
First, on my instructions, this year the Government has launched a program of effective employment and development of mass business.
Now, people in the villages or cities can obtain a credit of up to KZT 16 mln for business.
It is important to broaden the geography of microlending, actively use instruments for guarantee and service support of entrepreneurs. These measures should be accompanied by organization of business training and financial literacy.
It is necessary to improve instruments for support of mass business in the future. Each region of Kazakhstan has to offer complex measures to develop mass entrepreneurship, including family business.
The number of created new workplaces, as before, is one of the key criteria for performance evaluation of the Government and akims’ activities.
Second, the Government and National Chamber of Entrepreneurs «Atameken» will take measures on front reduction of all kinds of costs for businesses, especially, cost of services in energy, transport and logistics as well as public utilities.
The procedures of public services should be optimized as much as possible. It is necessary to reduce the time and a list of documents and eliminate duplicate procedures. Thus, they should be rendered only electronic form, without physical presence.
In addition, the existing regulatory burden on business is incompatible with the task of creating a new model of growth.
I set the task before the Government and akims – to develop system measures on business deregulation by July 1.2017.
It is necessary to implement the best standards and practices of the developed countries. It is especially important to carry out this work at the regional level.
Akims and the Government should work out the detailed plans to improve the conditions for doing business in the regions based on the World Bank ranking.
The country needs a rating of the regions and cities on the ease of doing business. We will institute a special award for the best. It will be given once a year, on Industrialization Day.
Third, reduction in the share of the state in the economy to 15% of GDP, up to OECD levels should give a new impetus to the economic growth.
Previously there was a list consisting of 800 enterprises for privatization until 2020. The work is in progress.
I entrust the Government to speed up and complete privatization of the enterprises in this list until the end of 2018.
Introduction of the principles Yellow Pages has reduced the types of activities for the state in the economy by 47% (from 652 to 346).
The next stage, we need transfer all enterprises and all state-owned organizations, which do not conform to these principles to the private sector or elimination them until 2020. These are some thousand enterprises.
The practice, when we created legal entities for each program or task, must be finished.
It is necessary to ensure transparency and efficiency of privatization. There is also need of reconsidering the role of the state holdings.
I charge the Government to provide a qualitative transformation of the holding «Samruk-Kazyna». It is necessary to conduct an audit and optimization of both managerial and production business processes. As a result, it will be a highly efficient, compact and professional.
It is necessary to clearly define what need to leave for the state, in which important sectors and with what degree of participation.
Natural monopolies and implementation of the strategic important projects, including with participation of TNC, must be left for the state. These projects should give a multiplier effect.
The holdings «Baiterek» and «KazAgro» should have reorganization. They must be operators on the implementation of the government development programs. At the same time it is necessary to optimize their functions. All that can be done by the private sector should be transferred to business.
They should also deal with involvement of funding from non-state sources for implementation of the programs.
Fourth, improvement of public-private partnership gives a high potential for the development of entrepreneurship. The talk is about transfer of some public services to business.
We have already had good results on their involvement in preschool education. If during the previous 3 years the state has built 189 kindergartens for 40000 places, the private sector has opened more than 1300 kindergartens for 100000 places. 397 private kindergartens were opened in South Kazakhstan region, 221-in Almaty and 181 in Kyzylorda.
PPP in this sector is important for me. It shows how the state and business solve one of the most important national problems – to cover 3-6 year old children with pre-school education by 2020.
PPP development depends on the akims’ professional work.
All possible kinds and forms of PPP can be used for raising private funds: trust management of state property, service contracts and others. Thus, it is necessary to simplify and speed up all the approval procedures, particularly in relation to smaller projects.
PPP should become a primary mechanism of infrastructure development, including social one.
To modernize housing and utility facilities it is necessary to transfer them in trust with possible further privatization. The government must stop going rounds in circles. We need to become active in this process.
Fifth, it is important to prevent price and tariff fixing.
I charge the Government and NCHE «Atameken», to carry out «audit» of all legislation to identify regulations that hinder competition.
The third priority is macroeconomic stability.
The key objective here is restoration of an incentive role of the monetary policy and attraction of private funds in financing the economy.
First, the National Bank has the important task for the development of the regime of inflation targeting. It is necessary to achieve the stage-by-stage reduction of the inflation level to 3-4% in the medium term.
Second, the financial sector of the country should have «reset».
I entrust the National Bank to work out some measures for improvement of the banking sector.
It is necessary to step up activities for clearing the banks’ balance sheets from the sub-prime loans and if it is necessary to provide their follow-on capitalization by the shareholders. The National Bank needs to have more rights for operational control of the state of the banks. It must move from a formalized approach to a risk-based in order to take measures of influencing the banks, not waiting for technical infringement on their part.
It is also necessary to strengthen the responsibility of the audit companies, to ensure transparency of shareholders and, as a whole, to improve corporate management. All this should be fixed in terms of legislation.
In order to solve the problem of money stringency in the economy and high interest rates on loans I entrust the National Bank and the Government to take some measures for ensuring availability of medium- and long-term funding in tenge.
The National Bank has to be responsible not only for inflation but also for the economic growth together with the Government.
Third, Further development of the stock market
Privatization should give an impetus to its development. It is necessary to increase the opportunities for people to invest their money in the different types of securities.
At the end of 2016 we completed the campaign of legalization. More than 140 thousand citizens of our country have taken part in it. In total KZ 5.7 trillion have been legalized, among them KZ 4.1 trillion in cash.
The task of the Government is that these funds work in the economy, through participation in privatization as well. We also need to consider the issues of subsidizing.
I charge the Government and National Bank to take measures aimed at activization of the domestic stock market.
The other key task is bringing the fiscal policy to the new economic realities.
First. It is necessary to improve the efficiency of budget expenses radically.
We fully provided the national programs with the necessary resources in 2017. The ministries and departments should check the efficiency of use of funds.
It is necessary to start with the Ministries of Labour and Social Welfare, Health, Education and Science, as they account for over 40% of the republican budget. The results must be reported to me.
We should reallocate the funds from the ineffective programs to the programs, fulfilling the tasks of the Third modernization. The budgetary procedures must be simplified for faster and more effective bringing of the funds to the real economy.
We need to continue the policy o fiscal centralization. A lot of functions and powers have been delivered from the central to the local level in the previous years. Now they need to back up sufficient financial autonomy. At the same time it is important to avoid concentration of expenditure powers at the regional level. It is necessary to give them to the district and rural levels. Akims have to decide the issues of the regional and local importance and the Government should focus on the national issues.
Second. It is essential to more efficiently deal with the National Fund.
The size of the guaranteed transfer from the National Fund must be reduced to KZ 2 trillion by 2020.
The tax policy should focus on stimulating business exit from the «shadow» and expansion of the tax base in the non-tradable sector. Optimization of the existing tax incentives should be made. New special tax regimes should be taken into consideration on the threshold of the universal declaration.
Mechanisms of the tax administration arrangements remain wanting. First of all, it concerns value added tax.
Third. The government needs to build a system of monitoring and control over external and internal loans of the quasi-public sector and bring it to order.

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The fourth priority is improvement of quality of human capital.
First, the role of the education system will change. Our task is to make education as a centre of a new model of the economic growth. Training programs should focus on the development of critical thinking abilities and skills of independent search for information.
At the same time, we need to pay attention to IT-knowledge formation, financial literacy and education of youth patriotism. It is important to reduce the gap in quality of education between urban and rural schools.
I entrust the Government to submit relevant proposals.
Stage-by-stage transition to trilingual education.
The Kazakh language maintains its dominant position. Much attention will be paid to its further development. Today, English is the language of new technologies, new industries and new economy. Now, 90% of the world information is in English. Every two years its volume doubles. Kazakhstan cannot reach the national progress without mastery of the English language.
Since 2019 teaching in some subjects for the 10-11 graders will be in English. It is necessary to consider this issue carefully and take reasonable decision on it.
The level of schools and teachers in urban and rural areas differ greatly. The problem of competent teachers is also critical. Therefore, taking into account all these aspects, we need to introduce the English language stage-by-stage.
I charge to give relevant proposals.
Implementation of the project «Free vocational education for all» starts since this year on my initiative.
First of all, free education should cover unemployed and self-employed young people and people of working age, who do not have professional education. It is necessary to give an impetus to the development of the vocational education system for training of specialists for new productions within the marked economy.
We need to update the professional standards in accordance with the labor market requirements and best international experience of in industries.
At the same time, special attention will be paid to the quality of higher education system. It is necessary to enhance monitoring and requirements for the staff of higher education institutions, level of their business logistics and educational programs.

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Second, the health care system must be changed.
A system of compulsory social health insurance, based on joint and several liability of the state, employers and citizens will be implemented since July 1,2017. The effectiveness of this system has been proved by the world practice.
Participants of the health insurance system will be given a wide range of medical services. Participation of socially vulnerable groups in it will be supported by the state.
The government needs to provide the health informational support. For promotion of competition, the private health institutions should provide equal conditions within the CSHI system for (compulsory social health insurance).
I entrust the Government and akims to organize awareness-raising activities.
It is also necessary to control prices for medicines.
Third, social security.
On my instructions, pensions will be increased by 20% since July 1,2017 for 2.1 million retirees compared to 2016.
Since July 1,2018 the basic pension appointment will be based on the new method. Its size will depend on the length of participation in the pension system.
All of these measures in 2018 will provide an increase in 1.8 times of the new size of basic pension compared to 2017.
About 400 thousand children are born in the country every year (more the level of 1999 in twice). We need to support this good trend.
Since July 1.2017 the size of lump sum money for birth will be increased by 20%.
The living minimum wage shall be reviewed. It should accord with the actual consumer spending of Kazakhstani. Since January 1,2018 it will allow increasing the size of the basic pension, benefits for disabled people and families without supporters, targeted assistance and benefits for disabled children.
Since January 1, 2018 the threshold for providing targeted social assistance has to be raised from 40 to 50% (depends on minimum subsistence level) and implement its new format. At the same time, all those who can work should be supported only on the condition of participation in the employment program.
The fifth priority is the institutional transformation, security and fight against corruption.
Firstly, as part of the Third modernization the Government needs to give work on implementing the best practices and OECD recommendations.
Secondly, we carry out the reforms, aimed at protection of private property, supremacy of law and equality before the law. This work must be continued.
I charged the Government, NChE «Atameken» and civil society to conduct an audit of all legislation to strengthen the protection of property rights.
The administrative and criminal law also needs to be humanized. Administrative fines should be fair and proportionate to the committed offense.
It is necessary to carry out further work to reduce the penalties for offenses in the business sphere. It is necessary to decriminalize economic compositions with a low degree of public danger.
It is necessary to achieve greater confidence in the judicial system. It is important to avoid any inappropriate influence on the work of judges.
Thirdly, the security status becomes the measure of a strong and active state.
In modern conditions the humanity is faced with terrorism growth. The key here is the fight against financing the destructive forces and links with foreign terrorist organizations.
It is necessary to prevent propaganda of religious extremism, including in the Internet and social networks. It is necessary to form of zero tolerance in the society for any actions related to radical manifestations, especially in the sphere of religious relations.
The prisons should organized purposeful activity of theological rehabilitation services with convicted persons. It is necessary to take additional steps on spiritual and moral education of the younger generation.
The non-governmental sector and religious associations should be actively involed in this activity.
All these measures should be taken into account in the State program of combating religious extremism and terrorism for 2017-2020.
Fight against cybercrime becomes more urgent.
I charge the Government and National Security Committee to take measures for creation of the system «Cyber shield of Kazakhstan».
Fourthly, we have made significant steps to reduce the level of corruption in the country. At the same time, the main focus is on combating the effects of corruption.
It is necessary to step up the work on identifying and elimination of the causes of corruption.
One of the key issues is improvement of the procurement sector.
I entrust the Government to introduce a unified public procurement system on the principle of centralized services.
We need to review the approaches for conducting procurement in the quasi-public sector, natural monopolies and subsoil sector.
Much in anticorruption efforts will depend on active participation of the whole society. With development of social networks and other media resources the unified nonadmission should be a powerful instrument in fight against corruption.

Dear Kazakhstani!
I would like to convey my view of the development trends in the new reality to every citizen.
I entrust the Government to work out a strategic development plan until 2025 using the Third modernization of the country titled “National Technology Initiative of Kazakhstan».
We have no other choice but meet the challenge gracefully and solve the problems for the further modernization of the country.
I believe that our great nation takes advantage of the unique historical chance.

Dear Friends!
Kazakhstan is a new multiethnic, confident in its future and dynamically developing country! We have celebrated the 25t anniversary of Independence of Kazakhstan.
We have a unique wealth of experience in formation of the state. We have started a new stage. I am sure that no matter what difficulties we face, we will overcome them. Our main strength is unity.
We will make Kazakhstan more prosperous country for our descendants!