MANILA, PHILIPPINES – Kazakhstan needs to intensify its push for economic diversification and innovation if it is to achieve its goal of being among the top 30 most developed countries by 2050, says a new Asian Development Bank (ADB) report.

“The key growth and development challenge facing Kazakhstan is the need to expand its economy beyond the current reliance on natural resource extraction, and to raise its competitiveness,” said Bindu N. Lohani, ADB Vice-President for Knowledge Management and Sustainable Development. “It is taking steps in the right direction but it needs a more integrated approach to achieve its goals.”

The economy has boomed over the past decade on the back of mineral resources but this natural advantage has also blunted its sense of urgency to invest in innovation and education, says Innovative Asia: Advancing the Knowledge-Based Economy released today. The report uses the World Bank’s Knowledge Economy Index to rate countries based on four knowledge-related indicators, with Kazakhstan ranked 73rd out of 145 countries in 2012.

Challenges facing Kazakhstan’s drive for a more knowledge-focused economy include a small private sector, corruption, limited entrepreneurship, low quality and relevance of education—particularly in the tertiary and vocational sectors—and low levels of research and development spending. Low penetration of internet and mobile phone access and usage in rural areas, meanwhile has created a ‘digital divide’ with cities.

Overcoming these obstacles requires upgrading and modernizing vocational and polytechnic education, increasing public spending on technology innovation, and developing the venture financing industry for knowledge-based business start-ups. Although the country has made substantial headway on information and communications technology rollout, and developed a new strategy to boost phone and internet access in rural areas, there is also scope for greater liberalization to promote competition in telecommunications.

The government has taken a number of initiatives in recent years to encourage innovation but it needs a more coordinated approach, the report says. This could include creating a high-level Inter-Ministerial Council to oversee the effective implementation of policy, perhaps along the lines of Finland’s National Research and Innovation Council. The country could also benefit from adapting some of the more successful policies and programs of advanced East Asian economies.

Knowledge economies use information and communication technologies, innovation and research, and specialized skills to create, disseminate and apply knowledge and information for growth. Currently, developing Asia ranks below the OECD average in the World Bank’s Knowledge Economy Index.

Swift technological advances mean developing Asia is unburdened by older generations of technology, allowing it to quickly embrace new technologies. The International Telecommunication Union estimates that in 2013 there were nearly seven mobile subscribers for every fixed line in Asia. With the right policies and investments, Asia could therefore move to on-demand cloud-based services and wireless internet and mobile applications faster than more developed economies.

Actions to promote knowledge-based economies will differ by country. But they will require strong, coordinated government policies coupled with investment in information and communications technology including universal, affordable and high-speed broadband connectivity, better education notably tertiary and skills-focused training, and a culture of research and innovation with strong intellectual property rights. Flexible capital and labor markets are also crucial.

This shift to knowledge-based growth is critical since the region’s comparative advantages in labor and capital-intensive manufacturing are fading. New technologies like robotics, and increasing stress on resources like energy and water, are emerging as threats to Asia’s competitive edge. A shift to innovation-based growth would help countries avoid the middle-income trap and also address rising income inequalities.

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