Managing Partner of Dasco Consulting Group talks about the prospects of the Kazakhstan labor market
The creation of quality jobs built into the global economy is a key factor in the socio-economic development of the State. This idea is clearly expressed in the Presidential Instructions Implementation Plan, which was presented at an expanded meeting of the Government last July. Darmen Sadvakassov, Managing Partner of Dasco Consulting Group, told the Kapital.kz business information center correspondent about the prospects of Kazakhstan's labor market
The most important thing is to be integrated into the global market.
- Darmen Kanatovich, among the ten areas of state policy noted by Kasym-Jomart Tokayev in his inaugural speech, a special place is devoted to providing jobs for the population. The government has also identified this task as one of its top priorities. In your opinion, what conditions today affect this sphere and what measures can be most effective?
- Implementing various projects to study industries and support the strategic development of large companies and organizations, we have come to understand that there is no economy other than the economy of jobs. And the fact that employment has been identified by the government as a priority is a positive signal for the socio-economic sphere and potential investors. Here it is necessary to highlight a number of key points, which the state is currently focused on.
Firstly, one of the key challenges we have in this area is precisely the creation of quality jobs. They are defined by several criteria, including: permanent employment, pay levels, productivity, safety, and, most important, integration with the global economy. For example, despite their definite usefulness, such employers as a traffic inspector, an internal auditor or a utility worker are not integrated into the international system. While a mechanic for a mining company, an oilman or a farmer are part of the global marketplace.
And judging by the approved Action Plan, the government has an understanding that in order to increase Kazakhstan's competitiveness it is necessary to create high-quality, productive jobs. The more productive jobs we have, especially in sectors with higher redistribution and technology, the more competitive the country could be, the more productive and the better paid people would be. The latter is due to global competition for resources. The manufacturing, food processing, business services, and IT industries have great potential for creating quality jobs.
Second, only private business is capable of generating quality jobs. The task of the state will be to create the most favorable conditions for this process.
For example, in OECD countries, small and medium-sized businesses employ more than 60% of all employed people. In our country this rate is about 30%. At the same time, a very large part of the working population "hides" in the informal workforce. Also the share of those who are in state employment is high. Besides, if to compare with developed countries, we have much less number of employees per one enterprise. If in Kazakhstan the number of employees per one enterprise increase to the rate of OECD countries, more than two million more quality jobs can appear.
Thirdly, almost all national holdings and companies, the quasi-governmental sector in general, have excessive jobs. In fact, national companies are used as a tool of the government to ensure social stability in the regions. However, this is an extremely limited resource. In the medium term, the labor force is expected to grow, driven by fertility rates and increased life expectancy. Demographic growth will also be aided by the entry of young people into the labor market - up to 2 million young people will leave the education system by 2025. As you understand, the current tools will not solve the problem of a new army of labor and creative forces.
Fourthly, exports of our goods and services to international markets play a key role in enhancing competitiveness. For this purpose, the government intends to deepen processing of production and introduce advanced technologies. Of course, compared to neighboring economies of China and Russia, we have a small amount of labor resources. And a significant share involved in agriculture generates a relatively low volume of GDP.
Therefore, it is up to the state to assess opportunities and focus precisely on those sectors where maximum added value with export potential is created. The export of sophisticated goods attracts money to the country, increases the volume of GDP, increases the budget, which turns into public investments, and creates quality jobs. We are talking primarily about those engaged in the production of goods with high added value.
Of course, there is a significant limitation in this direction for our country - the transport component. At the same time, the market for large oil and gas projects implemented in Kazakhstan is, in fact, an international market. The potential for increasing the share of Kazakhstani equipment in the purchase of big oil and gas projects is enormous. We need to create conditions in the form of access to information and provide businesses with long-term supply contracts.
At the same time, our lack of access to the sea draws our attention to alternative opportunities - transit potential and the export of business services, which include consulting.
A separate vector is the IT sphere. Kazakhstan has been engaged in digitalization for more than a year and has had some success. There are successful business projects, trained personnel, including under the Bolashak program, promising startups, venture funding and sales markets. Ideally, an ecosystem of innovative business should be created, with support both in the local and international fields.
Business has no time to deal with bureaucracy.
- What barriers does our labor market face? What prevents us from immediately solving the challenges you listed?
- There are quite a few obstacles. For example, the lack of affordable, long-term financing for small and medium-sized businesses. Despite the wide popularity of the programs of the Entrepreneurship Development Fund "Damu", they cover only about 1% per year of the existing need. Loans from second-tier banks, on the other hand, allow only short-term projects, at the level of trade operations. Otherwise, high credit rates ruin businesses.
Moreover, the mechanism of obtaining state support is very bureaucratic. There is a need to simplify procedures on the basis of clear and definite criteria for evaluating businesses with regulated timelines. Business should run business; it has no time to deal with bureaucracy.
The lack of transparency and early provision of up-to-date information on purchases also affects. A quick effect can be achieved, for example, in the purchase of goods for the repair of factories in the country. This is a planned activity, depending on the depreciation of equipment. If we give this information to business a year or two in advance, it will motivate entrepreneurs to attract technological partners and investments in Kazakhstan to create joint companies and jobs.
The market is also stuck by the lack of long-term contracting, especially for the supply and production of goods with Kazakhstani content. Orders for a long period of 3 to 7 years allow business to strengthen, plan, increase technological efficiency and productivity. Long-term contracting only for oil and gas sector of Kazakhstan will allow creating up to 60 thousand permanent and high-quality jobs. We always tell about this at all dialogue platforms, in the media, and during personal meetings with the heads of relevant departments and major oil and gas companies.
First of all, we should pay attention to the largest oil and gas projects - Tengiz, Karachaganak, and Kashagan. To date, too ideal conditions have been created here for foreign suppliers in terms of customs duties and VAT refunds. This leads to the fact that producers are not motivated to establish production inside Kazakhstan, while foreign companies have an overwhelming advantage in terms of taxation.
Therefore, it is necessary to look for conditions, when foreign manufacturers will look for an opportunity to create production of equipment in our country, to localize it together with local participants on the requirement of Kazakhstan's content. Of course, here we should take into account that since 2021 our transit period in the WTO is going to end, but nevertheless the potential of this sphere is huge.
- Is there a legislative and operational way to improve this situation?
- In our opinion, it is advisable to include target indicators of quality job creation in all strategic and program documents as part of the implementation of the Action Plan approved by the government. To do this, it is important to develop a definition of quality jobs, fixing it in regulatory legal documents. It is necessary to define its criteria, including the level of wages, productivity and the degree of involvement in the global economy.
The taxation regime needs to be improved, especially in terms of encouraging businesses to consolidate. There is also a need to take steps to further protect property rights and legitimate business interests.
Another important step is the reducing of regional imbalances in the allocation of state resources for the implementation of state and government programs. This step primarily concerns lending, various types of state financial support, and the adoption of more effective mechanisms for bringing funds to final borrowers.
- What is going on in the labor market right now? What is the main trend?
- The employment sphere is undergoing tremendous changes. Over the past 8-9 years, Kazakhstan has seen large-scale overflows between industries. A striking example is agriculture, where the number of workers has halved, to 1.2 million people, and this is not the limit. At the same time, the transition of labor resources took place in more productive areas - industry and services.
The indicators of specialists in the field of IT have significantly increased; there is a positive dynamics in tourism. At the same time in those sectors where the state dominates, such as education, social sphere and health care, the quality of employment also increased. All this happened with a more than twofold increase in productivity. However, we are still far from advanced standards. Kazakhstan's productivity lags far behind the developed countries: from Norway by 8 times, from Germany, France and Finland by 5 times, from Great Britain and Italy by 4 times.
Sectoral overflows significantly affect the demographic map of the country: since 2010 the number of employed people in cities increased by 777 000, and in rural areas this figure decreased by 196 000. If we talk in terms of regions, the situation in the Aktobe region, where 106 000 workers arrived in town, and 67 000 left the villages. However, the active development of the agricultural sector in the Almaty region, on the contrary, caused a drift of workers in the countryside, where 126 000 new workers settled down.
The data on overflows clearly show how interconnected everything is. Unfortunately, the multiplier effect is often not taken into account in the implementation of sectoral reforms, which tend to take place within a single government structure. Cross-government coordination is important here. For example, if we carry out a reform in agriculture, it means releasing some people and redistributing them to other sectors, primarily to small and medium business.
In 1979, a very interesting reform to move from collective farming to the modern farming model was carried out in China. A very large number of people were released who needed a painless transfer to other industries and regions. Then the agrarian reform was synchronized with the opening of free economic zones in the south of the country - in Guangzhou and four other cities. Also the social welfare work was competently built up - the procedures of job placement, retraining, registration in kindergartens, schools, clinics, and others were accelerated and simplified. That is, the mechanism of internal migration was completely taken under control.
Millions of people rushed to the south, where they were offered job and educational opportunities, as well as higher incomes. At the same time, the new economic zones themselves relied on investment, which came mainly from Taiwan. This model made it possible to create a powerful industry based on Free Economic Zone with access to the sea. China became a global exporter of various goods. At the same time, the agricultural sector experienced a decline in labour force and an increase in productivity.
Kazakhstan's economy should adopt such experience of coordination between various government agencies, foreign investors and domestic businesses.
Skills prevail over diplomas.
- Let's move on to the future of the labor market. Where exactly, according to your projections, will new jobs be created? What areas can we develop in addition to small and medium-sized businesses?
- Two questions need to be discussed here. On the one hand, how much manpower will be available for the economy? This, again, is a direct correlation with demography. We had a failure in the 1990s, and we are still experiencing its consequences. For example, for this reason, Kazakhstan's labor market until now has been in good conditions, there was not much pressure on it. Relatively few people were coming here, unemployment was declining, and the number of self-employed was declining.
This trend will last another five years at the most, but then the challenges will begin to grow. As I noted earlier, graduates from the generation of the so-called Kazakh baby boom, which we have seen since the early 2000s, will compete for jobs. In addition, changes in pension legislation will affect a lot of women, who will start taking their well-deserved retirement a few years later.
The other side of this issue is that the state will have to make every effort to create new jobs. If we are talking about agriculture, the self-employed, working on private farms, when creating labor demand, will try to move to the city and find a job with better conditions. At a minimum, it will be a cab format "Yandex" and Uber, construction, trade, transportation, services. If a person gets a good education, there is an opportunity for qualified work in the city.
As for the conditional creative class, it is no longer limited to the choice of classical professions. We can already talk about such potentially in-demand professions as designer of smart homes and 3D printing, operator of medical robots, controller of unmanned navigation, designer of virtual worlds.
But if jobs will not be created, urbanization will slow down, and the number of self-employed will cease to decline. The most serious social risks will arise, with uncontrolled consequences.
- What kind of labor resources will Kazakhstan be primarily interested in?
- First of all, there will be an increase in demand for higher and middle-skill personnel. Where automation is possible, firings will begin and resources released will require skills upgrading and retraining. We are well aware that between ten loaders and one forklift truck operator with a forklift the employer will choose the second. A general evaluation is that about one-third of the world's manufacturing processes will be automated by 2035. This will impact 75% of jobs.
On this basis, the "knowledge economy" will begin to prevail. They require a long cycle of training, a high level of education, but this is where the future lies. In developed countries the labor market already consists of at least a quarter of professions of "knowledge" category - programmers, lawyers, physicists, engineers, entrepreneurs. In Kazakhstan, this rate is growing, but is still only 11%.
There are about 8.5 million employed people in our country, and we need to train about 1 million people annually. This includes those who retire or take maternity leave. Based on this, it is obvious that the issue of continuous training becomes a strategic task at the level of the state.
There are two fundamental points in this area. The first is increasing the effectiveness of short-term courses, which are very popular today. We are talking not only about events that are held at the expense of the state, but carried out directly by the enterprises themselves. Their main task should be to ensure flexibility and interconnection between the ongoing economic and educational processes. In other words, the reform of vocational education and training announced by the state is very relevant here - the main thing is to clearly define the priorities.
The second direction is the introduction of new models of online distance learning. This is a worldwide practice, and it proves its effectiveness through the rapidly expanding market called EdTech ("educational technology"). By 2020 it will grow to 250 billion US dollars. Millions of people today are learning and improving their skills online. Kazakhstan will use preferably local online platforms with training courses, which would consolidate all training providers, employers and workers who want to improve.
- What risks would arise if everyone suddenly rushed to improve their skills?
- If we move only in this direction, we can generate skilled unemployment. That is, people will become educated enough to solve complex problems, but at the same time there will be no quality jobs.
Therefore, in addition to continuing education, the country needs a system of professional orientation. It must be simple and understandable, where everyone can find information about in-demand professions, prospects, and educational programs.. As far as we know, this work is already under way. It is very important that it be completed.
Moreover, the question always arises: what should be taught to the labour force? As a rule, in many countries it is solved through the national qualification system. Its development in the country has been implemented for many years, but the expected results are still missing. Therefore it is advised to restart this system, to change dramatically the mechanism of its work. This requires a systematic approach. We do not exclude the probability that some solutions in this area can be implemented much easier, faster and cheaper than it is done now.
- Then how important is the role of educational diplomas and certificates of all kinds in this situation?
Put yourself in the position of an entrepreneur who needs, for example, a design service for making video graphics. The employer will first look at the candidate’s portfolio, and will be the last to care whether he has an official specialty - designer, architect, or even a doctor. The main thing is that the person has the appropriate skill.
In this case, the "economy of skills" begins to prevail over the "economy of diplomas. And a skill can be obtained in a shorter period of time than a diploma, and be in the market absolutely in demand and quite highly paid.
It is not a secret that the knowledge acquired in educational institutions is rapidly becoming obsolete. Earlier technical education received in a vocational school or university was sufficient for 10 years without further training, but now - only for 2 years in many specialties. In order to maintain proper qualification and remain in demand on the market of the XXI century, it is necessary to study independently for five hours a week.
On this basis, it is necessary to introduce courses and online training in Kazakhstan as quickly and efficiently as possible. It is important to prepare our people for the new economy, where specific skills, not formal diplomas, will be required.
To sum up, it is necessary to emphasize: solving the problems of employment, bringing this sphere to a qualitatively new level - this is the main social and economic vector of the country. Everything else is a product of this vast process, on the success of which the sustainable development of our State depends.