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What Hinders IT Development in Kazakhstan?

According to specialists, the weaknesses of IT sphere in Kazakhstan are small market, high dependence on import, and staff shortage. 

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The authorities of Kazakhstan have set an ambitious goal to become a top 30 country in the development of information and communication technologies (ICT) until 2022. Now Kazakhstan ranks 52nd among 175 global countries in the UN ICT Development Index ranks. In 2018, the state allocated 118 billion tenge or over 30o million dollars to the IT development.

A few years ago the head of state requested to actively implement the digitisation programme in state bodies and state-owned companies. The Digital Kazakhstan programme must become the basis for rapid growth of technology in the republic and shift to electronic services. The quasi-public sector and the republican budget will allocate almost 300 billion tenge or over 780 million dollars to implement the programme.

In general, the programme contains five key directions: digitisation of economic sectors, shift to digital state, implementation of digital silk road, human capital development and creation of an innovative ecosystem. The free economic zones Alatau Information Technology Park and international science park of IT start-ups Astana Hub have been organised for the ecosystem development, emergence of hi tech companies and support of existing companies.

However, active digitisation and shift to advanced technologies are implemented by means of foreign solutions.

In 2016, domestic programmers resented that the largest joint stock company, Samruk-Kazyna National Welfare Fund, which controls all national companies, buys software from foreign companies. They said it would have been better to cooperate with domestic specialists and use their developments instead of paying great deals of money to foreign companies. Also, in addition to high price, the dependence and information security of software purchased from foreign vendors remains an open question.

Then it was resolved to apply the “service model”. It meant that state bodies would not create their own information and communication infrastructure and information systems and would instead shift to buying ready-made services. However, according to the then chairman of the board of the national infocommunication holding Zerde, Ruslan Yensenbaev, the scheme failed because investments were made, but a service or a product were not approved for use.

Business incubator

The executive director of Astana Hub, Adilet Nurgozhin, thinks it’s possible to replace foreign solutions with domestic ones. Anyone who wants to create a start-up today in IT sphere may take part in the programmes implemented by the science park. To do that, one needs to apply and get registered. The so-called trackers – experts with good experience of business activities – work over the project.

Адилет Нургожин. Photo: CABAR.asia

“However, many projects wind down during training. There were participants who failed to complete training, to perform tasks, to implement the plans they had, to follow the programme. So, they were removed from the process,” Nurgozhin said.

Speaking about innovations, it should be noted that the majority of start-ups close during the first year.

“Now the state makes it possible to simplify this process to the uttermost: by creating conditions, teaching necessary skills, offering low rent for office spaces, we let them focus on their idea, on their target audience. There are programmes of incubation development, acceleration with balanced processes, and we just let them develop further. We are trying to improve the vitality of start-ups.  After the first class of trainees, we had 14 projects, now just under a half of them exist. We hope these figures would grow,” said the head of Astana Hub.

He emphasised there is a competitive IT market, business, which is independent and profitable. Major players emerge and concerned local and foreign investors are ready to invest into interesting projects. 

Three issues of start-uppers

An Almaty-based start-up project “Simply Back Office” is getting ready to enter the Astana Hub. Project manager Anton Kim said the key idea was to provide outsourcing-based services of a lawyer, accountant and business assistant. The clients of this service may also control all processes via PC or mobile apps.

“Raising money is an issue for many start-uppers. It was easier for us. We found an investor due to my previous career. If I were a student with an idea, it would be much harder,” Kim said.

He emphasised the state policy and organisations do really help start-up ideas. They train and improve skills of specialists.

“Tax exemptions for the participants of Astana Hub make it possible for start-ups to develop at the initial stage. Exemptions apply to VAT, income tax, tax on import. It’s a good encouragement in terms of law. Also, the science park provides for the project acceleration, where some investors can invest into projects. Some projects have already raised some money, but not very big,” the project manager said.

However, according to him, there are three issues with start-uppers in Kazakhstan: finances, infrastructure and law.

According to specialists, one of the stumbling blocks for domestic IT experts is the procurement process in corporations. By law, companies that offer the lowest price for services or goods are awarded contracts during tenders. In this case, domestic companies are not competitive. Therefore, Astana Hub looks into a possibility of amending the law in order to simplify the rules of participation for local companies.

The global practice of start-up development – venture capital financing – is developing in Kazakhstan at the moment. Despite almost 10 years of talks about such kind of financing, real deals are fewer than 20.

“Kazakhstan doesn’t have venture investment yet. Few investors are ready to invest into IT start-ups or ready to wait for profit for a long time. Here, a start-up business model should have either a short pay-back period, or at least bring some return from the very beginning,” Kim said.

Astana Hub. Photo: CABAR.asia

“What do they do?”

Science parks are designed to attract investors. However, the free economic zone IT park Alatau created based on the Belarus science park in 2005 fell short of expectations.

The deputy of mazhilis of the parliament of Kazakhstan, Amanzhan Zhamalov, said over 20 billion tenge (52 million dollars) were invested into its infrastructure. However, if the hi tech park in Belarus attracted more than 100 million dollars in direct investments, more than a half of the area at the local equivalent is not used.

Preferences and special economic regime failed to attract truly breakthrough technologies; products produced by FEZ participants remained insufficiently competitive and marketable. The park was more like a typical offshore zone, not for foreign but for domestic businesses. Moreover, the endless reshuffle of top managers of the park and “turnover” of its residents only add to the suspicion that both have problems.

IT companies drew a line when they refused to occupy a building that was recently built for them in the zone. Programmers were not interested in the idea of settling down two dozen kilometres away from Almaty, in the village of Alatau.

“It has taken us many years and much money to create it. However, we don’t see what they do. Does anyone in the government know? What do they do? They have vast territory, we help them, create infrastructure,” Nazarbayev emphasised. “We should know for sure what they do. Will we close down the IT park or develop it further?” said ex-president of Kazakhstan Nursultan Nazarbayev in his speech in 2018.

After such a devastating criticism, the innovation technology park was signed off to Almaty, and the list of its activity was not limited to IT innovations, but rather extended to include pharmaceutical industry, defence industry, education.

Support needed

Representatives of Astana Hub think they have slightly different tasks. It mission is to develop start-ups and support hi tech projects to strengthen the national economy.

“We work with certain major corporations, trying to understand the need of these companies for the automated business processes and design our start-ups respectively.  We give them cases they can implement. Local projects that replace foreign solutions may be implemented within a short time span. The competition is increasing in this sphere,” Adilet Nurgozhin said.

According to specialists, the widespread issue “state is a bad manager” refers to the digitalisation issues in Kazakhstan, too. The state must be engaged in the creation of rules and regulations to create conditions for business.

According to IT specialist Baizhan Kanafin, state managers are not ready to tackle IT support issues in domestic companies as they could be immature, which means more risky.

“For Kazakhstan with its small IT landscape, the only solution that has a chance to become profitable is an individual support from the government of more or less mature IT products. South Korea did the same in the 80s and such giants as Samsung, LG and others developed as a result,” he said.

According to him, if the government adopts a respective decree, it would be binding at the local level. This, in turn, will eliminate the risks for IT managers and they will be making decisions easier.

According to Kanafin, temporary conditions and preferences should also be created for domestic IT products. For this purpose, existing products should be analysed, most competitive ones should be chosen and improved on a case-by-case basis and propelled to the global level.

Journalist CABAR.asia from Nur-Sultan is  является co-author of the article. 

This article was prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project implemented with the financial support of the Foreign Ministry of Norway. The opinions expressed in the article do not reflect the position of the editorial or donor.

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