SPIID Targets Are Unattainable: Outlook for 2017

I have a strong feeling that we will have to update the targets of our State Program for Industrial and Innovative Development (SPIID).

One of the program's key indicators is growth in manufacturing output of 43% by 2019 relative to the base year of 2012.

In 2015, manufacturing growth was 0.2%. In 2016, it will be 0.4%.

In 2013, it was 1.9%. In 2014, it was 1.1%.

That puts cumulative growth at the end of 2016 at 3.6% relative to 2012. In other words, over the remaining three years manufacturing would have to grow by 39.4%.

To hit that figure, industrial growth would need to be no less than 10.5% a year.

Incidentally, in our entire 25-year history we have achieved such rates only three times: in 2000 and 2001, and then in 2010. But in those cases growth followed a deep slump, and the base was low.

Oil prices are showing no growth, and next year we will not see significant growth either. That means next year will be even harder than this one. A restricted money supply, the fight against inflation through high interest rates, a problem-ridden banking sector that is barely breathing, and inefficient spending of the public money earmarked for supporting the economy will lead to the following:

1. Inflation, whether we like it or not, will rise, but not because of stronger demand. It will be driven by shrinking supply and the weak tenge against other currencies. Containing inflation will become harder and harder, and to bring the distorted statistical reporting back in line with reality, they will quietly start adding to the numbers.
2. The banking sector will be under colossal pressure next year. We will start to see small banks exit, while large banks will either raise capital or merge. Most likely, the National Bank will have to step in and even provide liquidity. For now the balance is being held steady, but in essence there is no banking business as such: lending is falling and problem loans are rising, which raises questions about liquidity and capitalization.
3. Growth in industrial output will come from Kashagan and from a fresh injection of government money into construction, and from nothing else. Yet cuts in Kashagan development spending will hit employment and incomes. And since this is a production sharing agreement (PSA), Kashagan will have no real effect on the economy in its first years of operation.
4. If oil prices do not rise, pressure on the exchange rate will continue. Rising prices for materials, rising wages and the effort to contain inflation will erase all the competitive advantages gained from the previous devaluation, and a new devaluation will be needed. But that raises the question of inflation, which has to be contained. This will be one more factor holding back economic growth, and a major dilemma for the Government.

That is roughly how matters stand. Industrial output growth of 10% is nowhere in sight, which means we can already state that the SPIID targets are unattainable and need to be revised yet again.

The only question is: perhaps it is not the targets that need revising, but the entire economic policy?