Economy

Up for Grabs

Privatization

Privatization is a part of a process in any economy that assumes a transition from primarily state and directive regulation of production to regulation on the basis of market mechanisms. […]

Privatization is a part of a process in any economy that assumes a transition from primarily state and directive regulation of production to regulation on the basis of market mechanisms. The 1991 Constitution of the Republic of Kazakhstan, the country’s first as a nation independent of the USSR, defined the right of a private property for the first time. Additional measures for privatization have been taken over the years for which the main purpose was to transfer state ownership to other forms and to create hospitable conditions for the transition to a market economy. In a 2014 message to the citizens of Kazakhstan, President Nursultan Nazarbayev announced that, in the first quarter of the year, the country would adopt a comprehensive privatization program lasting from 2014-2016.

“We must act now before this chill turns into a long, fierce winter,“ Nazarbayev said after stressing the importance of the privatization plan. The program aims at reducing state involvement in the economy and strengthening its foundations, mainly due to the increase encouraging growth of the private sector’s share of the economy. The program will develop a new privatization program that will include all entities owned by the state, such as units of Samruk-Kazyna, Baiterek, and KazAgro. The first company sold was MZ-Security, in June 2014, and a year-and-a-half later in November 2015, 35 assets of the program were sold already.

The main driving force of the privatization program is the intention to further stimulate the development of private businesses in the country. Today, Samruk-Kazyna transfers companies that were created as a result of state initiatives for diversifying the domestic economy and building new branches for development within the private sector. It is important to understand that specific projects and initiatives were implemented for a number of objective reasons: a lack of experience and financial opportunities for Kazakh businesses; the unavailability of strategic partners to work with; and a detrimental lack of funding that stemmed from the absence of the state guarantees.

The program is based on the principles of the Yellow Pages Rule, which avoids the formation of subsidiaries by public companies. It also puts some restrictions on government involvement in economic areas in which private companies are already operating. This does not apply to strategically important objects. The main goal of the program is to ensure the transparency of the process. Another ongoing problem was claims made by potential buyers that complained of a lack of information necessary to making a decision. This issue was solved by providing more information in advance, namely in the form of audit reports and evaluation reports.
Due to the development of the technology sector in the country, the privatization program will enable greater degrees of transparency, openness, and involvement for a wide range of people who are in the process of acquiring ownership of certain business from the state or shares in companies that are sold at auctions. The task of privatization the state’s industries is necessary in order to reduce the state presence at business. It is the goal of Astana to reduce the share of state ownership to 15% below the average level of countries in the OECD by 2020.

This will be Kazakhstan’s largest privatization move since it became independent in 1991. There is expected to be a significant need of foreign direct investment, as state assets account for 40% of Kazakh GDP. Sixty-five state-owned companies ranging from the oil and gas sector to the nuclear sector will be sold. The project is indeed ambitious, and is a testament to the country’s desire to become a modern economy gearing up to be a global player.

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