Executive summary

Prior to the COVID-19 pandemic, Kazakhstan experienced sustained economic growth, supported by an ambitious reform agenda aimed at increasing the contribution of the private sector to economic development, promoting the diversification of employment, output and exports, and enhancing Kazakhstan’s participation in regional and international value chains. However, the full benefits of these reforms have not yet materialised, as Kazakhstan’s private sector remains underdeveloped, and the economy remains largely dependent on commodity exports. The pandemic further exacerbated these structural challenges and highlighted the persistence of infrastructure bottlenecks and complex regulatory systems that have further weakened growth.

Digitalisation can support Kazakhstan’s diversification agenda

Digitalisation can help advance the country’s diversification agenda, by contributing to private sector growth and competitiveness. For firms, regardless of size, to engage successfully in their digital transformation, adequate regulatory frameworks and quality infrastructure are important framework conditions: effective regulatory conditions can increase the quality and affordability of access to digital infrastructure, while well-functioning ICT infrastructure can ensure sustained digital diffusion among businesses. Open competition in the telecom sector and whole-of-government approaches to digital infrastructure development are essential to supporting the digital uptake of firms.

The digital transformation of Kazakhstan’s economy started a few years ago. In 2013, the country was one of the first in the region to adopt a digital programme as part of its economic policy, developing a comprehensive digital government system and starting to create the legal and regulatory conditions for the digital transition of the national economy. However, the digital uptake of businesses remains limited, as only 11% of firms report using digital technologies, and the number could be even lower for small firms. Access and quality of current digital infrastructure, changing regulatory frameworks, and digital security issues appear among the main barriers to firms’ ability to go digital.

This report presents an analysis of the elements in the legal and operational environment that hold back firms’ digital transformation in Kazakhstan. Based on recent OECD work, it assesses challenges and develops policy recommendations to support the digital uptake of the private sector in three main areas:

• infrastructure and physical access, focusing on firms’ access to quality digital infrastructure;

• investment for additional digital networks and services deployment, focusing on competition in and investment attractiveness of the telecom sector; and

• firms’ readiness to withstand new challenges created by the digital age, focusing on their digital culture and the adequacy of the business regulatory framework in the digital age.

Key issues for firms include infrastructure access and quality, competition in the telecom sector, and a fragmented regulatory framework

The Digital Kazakhstan Strategy launched in 2018 and set to end this year, has been successful in developing a comprehensive digital government system and starting to put in place the legal and regulatory conditions for the digital transition of the Kazakh economy. However, the pre-requisites for the digital transformation of Kazakh firms, especially SMEs, remain below potential due to the following

Remaining digital connectivity gaps, in terms of mobile internet quality and low coverage in several rural and small urban areas, impede firms’ adoption of digital technologies.

• These are related to persistently high regulatory and economic barriers in the telecom sector, which prevent deployment of new infrastructure.

• Finally, the regulatory framework for businesses is not evolving in line with the new needs and challenges created by the digital age.