Very often, Government’s measures of support of business in virtue are lobbyism of businessmen. Those measures are nicely packed as “support to local business”, but in reality…  In reality, the state will repeat old systemic mistakes that curb the economic development of the country.

Economy expert Galym Kusainov, in his Telegram-channel, gave a simple and detailed explanation of the topic:

Deformation Principles

“ Here are two bright examples of deformations present in our governmental support programs, that curb the effective usage of state funds.

There must be uniform principles, mandatory for all. There must be no division by industries, because the government is not capable of supporting all of them and identifying, which one of them is the best or the most needful.  Any support must imply a multiplicative effect on economy.  In other words, each Tenge we invest must work not only through one cycle, but for many years. We need to either create the added value for the country, as a whole, or knowledge and skills that help to add value in future.

Added value has the following two characteristic markers – the share of the country’s labor resources involved in the generation of products or services, and the revenue to be collected upon sales of products and services. That constitutes the foundation of GDP. Knowledge and skills come from technologies and standards we import, and expatriate specialists we invite for them to share their luggage with our people.

Systemic Mistakes

Here are some examples of what must be supported and what, on the contrary, needs support. The Government supports the food industry, by building juice and beverage producing lines. Today, that particular industry is a priority. But if we look deeper into its specifics, we will identify that the packing and the beverage base are imported from China, sugar – from Russia and equipment – from Europe. The dishing-out process is automatic, and the juices and beverages market is so competitive, that the commercial margin is not that high. In the result of that, the localization of the industry is almost zilch, moneys, in the form of imported goods, are directed to China and Russia and all of that happens on the back of the measures of state support. Meanwhile, we are discussing an industry assigned with the status of priority. Should a factory make juice from indigenously cultivated apples, the Government could choose to support it.  In fact, the economic outcome of such support would be negative or zero, in the best case.

Short-Sighted Planning

Other example: a certain entrepreneur decides to build a hotel in a region under the name of a world franchise. Such enterprise is not eligible to enjoy measures of state support. But if to study hotel services in details, it will appear that hotel business is very labor-intensive.  Because of employment of local staff, the localization is high there. Workers with experience gained in franchise hotels possess all necessary skills and qualifications, the cost of their services grows from year to year, so in future, franchise standards may be applied in other local hotels and restaurants. That is a conditionally exported type of service, as there are tourists and guests visiting Kazakhstan and spending their money here. Besides, that works for the reputation of regional urban communities. But, that industry is not on the list of priorities. 

Conclusion

Given the above, it appears that support of business must be based on principles. The amount of that support is regulated by the level of localization, and, e.g. – employment. Otherwise, the support shall depend on lobbyism, not considerations regarding the future economic benefits for the country.