OVERVIEW OF THE ECONOMY
3. REVIEW OF THE MACHINERY INDUSTRY
3.2 Machinery Industry
One of the largest contractions of production during the transition period has occurred in the machine-building industry. In an effort to adjust to changes that followed the disintegration of the centrally planned economy, a number of enterprises attempted to introduce new products in the early years following independence. In 1993, for example, 73 enterprises started producing more than 200 new goods: buses, transport trucks, dump trucks, trolley buses and mini-tractors (UN, 1995). However, investment has continued to decline and new forms of production have usually failed.
The contraction of the industry has been associated with both the reduction in the derived demand for machinery equipment from the mineral processing and agro-industrial activities, and with supply shortages in the industry itself.
The trend growth rate of machinery output was the same as that of total industrial production (both -1.6 percent a year), suggesting that the demand for machinery products followed industry’s overall contraction of demand for intermediate products such as machinery and equipment. However, short-term movements of machinery production have differed from those of industrial output. These differences reflect supply adjustments of the machinery industry to support programs, planned output changes that have been unrelated to changing market conditions, production disturbances associated with interruptions in electricity and other utility services, and shipment delays of raw material and intermediate inputs.
Kazakhstan’s capacity to fulfill its agricultural machinery needs is limited. In the past, most of the machinery was imported from other countries and about 15 percent of domestic requirements was met by local manufacturers. As a result of the decline in agricultural activities and the lack of farm liquidity, sales of agricultural machinery have nearly stopped. Equipment inventory has also suffered. The number of operational tractors has declined dramatically since 1990, as has the number of harvesting combines and seeders. Given that excessive investments in equipment and machinery were typical for a command economy, the decline in numbers has been tolerable until recently.
Machines have been broken up to provide spare parts, but this process is approaching a saturation level and there is an immediate need for new tractors and harvesting combines, as well as replacement parts. However, until farmers are able to obtain the necessary financial resources to purchase the needed equipment either domestically or from abroad, the situation is likely to remain critical.
Figure 3.3
Machinery Output versus Total Industrial Production (1995.1 = 100)
60.0 90.0 120.0
1995.1 1995.3 1996.1 1996.3 1997.1
Machinery Industrial Output
The Machinery Industry in Kazakhstan: Economic Conditions and Policies
Table 3.7
Output of Basic Machinery Products, 1990-96 (volume and value)
Units 1990 1993 1994 1995 1996
Instruments and Spare Parts '000 tons 1,092,461 239,902 147,106 199,956 179,062 Metallurgical Equip,of which
Metal cutting machines units 2,578 1,193 42,957 114 na
Press-forging machines units 1,173 730 434 269 127
Rolling Stock Machines '000 tenge 4,353,819 242,125 259,530 605,136 688,604 Chemical Equip and Spare Parts '000 tenge 389,056 15,430 13,654 36,414 239,681 Agricultural Machines,of which
Agricultural machinery '000 tenge 5,567,081 854,420 435,832 299,021 257,666 Livestock and feed production
machinery '000 tenge 3,637,553 402,371 156,648 154,332 80,323
Source: National Statistical Agency.
This situation continues to characterize the present state of the industry. During the first nine months of 1997, the National Statistical Agency (1997a) reported shortfalls in the production of most major products of the machinery industry. Overall output for the period was more one-third lower than the level of a year earlier. As in the past, the large shortfall was due to material shortages and the lack of solvency of customers. Lower production in downstream industries caused large cutbacks in the production of alkaline and lead storage batteries for automobiles, power capacitors, and low-capacity electric motors for home appliances. There were also large reductions in the output of machine tools, press-forging machines and spare parts. No production occurred in metal-cutting machine tools in Almaty and the West Kazakhstan oblast, nor was there any production of equipment for processing of polymer materials and equipment for light industry.
There have been very few sales of new tractors or harvesting combines, compared with annual sales of around 30,000 tractors and 7,000 harvesting combines at the end of the Soviet era.
The number of tractors available has declined from 248,712 to 142,383 units between 1985 and 1996 (National Statistical Agency, 1997b).
Moreover, the inability to replace machinery has inevitably resulted in a marked deterioration of the existing equipment inventory. More recently, the performance of the industry has been mixed. During the first nine months of 1997 output of tractor drills and mowers increased, while that of cultivators, tractor plows, tractors, disc harrows and bulldozers decreased. Tractor-trailers were not produced because of the shortage of financial capital to purchase material input.
Disc harrows, tractor drills and electrical shearing machines were also not produced in some oblasts because of fund shortages.
0 100 200 300
1980 1985 1990 1991 1992 1993 1994 1995 1996
Figure 3.4
Number of Tractors, 1980-96 (thousands of units)
Table 3.8
Production of Major Types of Machinery, 1994-95 (volume and value)
Unit 1994 1995
% Change 1994-95 Volume:
Power transformers: units 2,608 1,376 -47.2
'000 kWa 371 157 -57.8
Power capacitors '000 kVa 333 139 -58.3
Storage batteries (lead) tons of lead 20,586 16,749 -18.6
'000 amp-hrs 585,984 478,942 -18.3 of which:
Automobile batteries units 665,989 470,210 -29.4
Alkaline batteries '000 amp-hrs 1,281 564 -56.0
Metal-cutting machine tools units 429 57 -86.7
Press and forge machines units 434 269 -38.0
Centrifugal pumps units 7,658 5,713 -25.4
Rolling bearings units 599,000 546,000 -8.8
Excavators units 32 -
-Bulldozers units 695 521 -25.0
Tractors units 1,988 1,803 -9.3
Agricultural machines of which:
Tractor plows units 3,012 283 -90.6
Tractor drills units 943 349 -63.0
Tractor cultivators units 1,125 82 -92.7
Tractor mower units 4,995 2,030 -59.4
Value ('000 tenge):
Metal cutting machine tools 54,217 16,938 -68.8
Press-forging machines 59,411 99,406 67.3
Instruments, automation devices, spare parts 147,196 199,956 35.8
Rolling machines 259,530 605,136 133.2
Chemical equipment and spare parts 13,654 36,414 166.7
Spare parts for:
Automobiles 190,760 200,320 5.0
Agricultural machines 250,498 546,606 118.2
Tractors 287,092 406,460 41.6
Livestock and animal feed production machines 57,759 165,837 187.1 Machines and equipment for livestock and animal
Feed production
156,648 42,019 -73.2
Agricultural machines 435,832 299,021 -31.4
Source: National Statistical Agency.
The Machinery Industry in Kazakhstan: Economic Conditions and Policies
In an attempt to revitalize the industry, the Government issued Decree 1344 in September 1997 on the Program of Forming and Developing the Agricultural Machinery Building Industry. The program aims to define the measures needed to resolve the problems confronting the industry. To this end, several tasks are to be undertaken by the Government:
Evaluate the requirements of the agricultural sector for machinery equipment;
Design a strategy for the establishment of an efficient industry that can satisfy domestic requirements and compete in foreign markets;
Identify the types of machinery that need to be produced in the country;
Revive farm demand for machinery;
Promote the establishment of research and development in the industry; and
Develop a plan of action for the program.
The program will be supported by regulatory measures to alleviate some of the major bottlenecks in agriculture and the machinery building industry. The Ministry of Energy, Industry and Trade, the Ministry of Agriculture and the Ministry of Science - Academy of Sciences will jointly carry out the program. It is within this context, that the present Master Plan Study for the Development of the Machinery Industry in the Republic of Kazakhstan is being prepared.
The Government’s plan is directed at the promotion of market-driven economic expansion in the machinery industry and other sectors of the economy. It has avoided the promotion of import-substitution policies that were detrimental to many developing countries, notably those in Latin America. Those import-substitution policies sought to develop domestic manufacturing capability for goods previously imported through such policies as import controls, overvalued exchange rates, binding ceilings on interest rates, pervasive price regulation, and a large share of public ownership of productive activities.
The effect of those economic policies was the creation of highly inefficient industries.2 The Government of Kazakhstan’s plan instead relies on market-driven expansion that is supported by public sector policies and practices and infrastructural development, and one that forms an integral part of its national development plan.
2Several studies have measured the effective rates of protection (ERP) and domestic resource costs (DRC) to countries pursuing import-substituting policies (Little, Scitovsky, and Scott, 1970; Balassa, 1971;
Bhagwati, 1978; and Krueger, 1978). Their findings show that the governments’ price and trade policies had led to the creation of inefficient industries. More recent works have shown that particular relative price distortions that affect capital and intermediate goods can also be costly to growth (Bradford De Long and