Multifactor concept of export development on the example of Regional Investment Center "Ontustik"

Nurbek Achilov, Advisor to the Chairman of the Management Board of RIC "Ontustik", Board Member of the G-Global Development Community, Founder of Innoker LLP

Theme:"Multifactor concept of export development on the example of Regional Investment Center "Ontustik"

Keywords: export, multifactor approach, development of regions

In the conditions of rapidly changing trends in the global economy and existing economic barriers between countries, regions, especially between those that located in the central part of the continents, which are landlocked without access to the oceans, it is necessary to focus the development of export potential on the basis of a multifactor approach.

Like in any area of application, multifactor approach means that any fact or trend should be considered and resolved in a comprehensive manner considering the various conditions, including interests of different stakeholders, participants and market situation.

The purpose of this paper to show a starting point of application of the multifactor approach in the development of the export potential on a regional level. The paper also aims to draw the scheme of the interchange of institutions and classify factors, which influence on export development potential.

Generally, the principles of the multifactor approach are applied in the study of social and economic issues, healthcare, creativity, crime reduction and others. As a result, the multifactorial approach allows us to understand the problem, identify the factors of influence and focus the activities on the necessary development factors.

Today, the issues of export development take new turn and require more qualitative work and approaches in Kazakhstan. Business, government structures and public should understand that without the development of the export potential it is impossible to save, grow and ensure socio-economic stability on a regional level. Bruce Katz and Emilia Istrate underlines that the export strategy is a key element of a government competitiveness in the 21st century, especially for job growth in the immediate term (1).

It is known that issues of export development are not a new topic. Exports was a topic even in the Soviet era, and in the 90's. That time it was more related to trade with foreign countries and in some periods of the history it was totally restricted (2). At the same time, earlier, export related only to government officials, who first sold state property to their own hands, and then allocated huge financial resources for the purchase of equipment and technologies in the form of loans for private enterprises but reporting and relating to the same officials.

It is evident that this helped soviet governors temporarily employ the population and solve urgent social issues in the regions. It also helped with exports, but it was mainly the export of raw minerals (3), from which there was more damage to the environment than profits for the regions. At the same time, the export potential of key industrial sectors, where knowledge and experience in research, were needed and valuable, did not increase.

This shows the evidence of the influence of historical processes, as well as the totalitarian regime, when still many older people perceive the market and innovations as the foreign concepts and models, in which all workers are exploited in the interests of the oppressor capitalists. It was a huge soviet propaganda in every sphere of the state management (4). Historically, tsarist and Soviet thinking, gradually destroyed the educated leaders and property owners of the regions, which led to the level when personal initiation was morally disappeared. On the other hand, 12 Soviet republics were established with the purpose to control the regions of the large soviet territory by dividing identical nations and creating new nationalities for more effective mixing and management of people (5).

As illustration, analyzing tribal groups of Uzbeks, Kazakh, Kyrgyz, Turkmen, Tadjik, Afghan nationalities one can find identical tribal families, but written in passport as different nationalities. This create serious identical problem and resolving this by uniting Central Asian countries in one single country could help with efficiency of the development of the region and balancing the powers of the region. It could also help the regions develop the transit potential more efficiently and create a new single market for investors and exporters.

It is important to mention that after the collapse of the USSR, many countries, especially in Central Asia, remained isolated (6) and could not adapt their economies to develop their productions, especially of export products. It also stopped the communications between countries. Even nowadays, each created independent state applies its own transportation tariffs and regulations, pouring its own monetary and exchange control systems, in general, maintain its legal base. These barriers gradually stopped even new productions, which were dependent on the markets in other countries of the CIS.

Such circumstances led to the fact that education and science were not in demand for business in Central Asia, CIS. For local post-soviet era business, it was important to be the first, fastest and most importantly to know more people for selling imported products. That time business began to actively cooperate with criminal authorities that helped them to solve problems with bureaucracy and banditry. All this lay down with traces on citizens and new generations’ thinking.

Today, on the threshold of new approaches to the development of the economies of the regions, during the active policy of Kazakhstan to create a single Eurasian content, united Turk-speaking countries, many principles of work and relationships are changing not only in Kazakhstan, but also in neighboring countries and even beyond.

The application of a multifactor approach to the development of export potential is the main element for changing the thinking of regions, primarily, in research, management and development.

From the observation of the situations, the development factors of the export potential in terms of scale can be divided into the following levels:

1) Global;
2) State;
3) Regional;
4) Institutional;
5) Corporate/ Entrepreneurial.

First, global issues include those that include the study of external markets and require the opening of transport and logistics corridors of the countries between the CIS, Central Asian countries, the unification of their legislation, tariffs and business rules. On the example of Kazakhstan, such steps relate to the creation of the Single Eurasian Continental Market, reviving the Global Silk Road concept, as well as the Chinese initiative "One Belt One Way" and many other initiatives.

Meanwhile, at the global level, there are several unresolved issues for exporters of Kazakhstan to enter the markets of Central Asia, the CIS, the Middle East and China due to the lack of common rules for businesses because of policy systems (7). To balance the various external threats of loss in markets, the creation of a single market of the countries of Central Asia, the Eurasian Continent and in the future of a single global market is a strategical task of all regional countries.

Secondly, on state level, issues of export development include those that relate to the study of Kazakhstan's internal and external capabilities to support exporters and require the special programs for the development of exports, infrastructure, education, science, as well as resolving the financing of export-oriented enterprises. For example, the opening of the Western Europe-Western China highway, as well as the opening of railroads to Iran through Turkmenistan, the development of Kuryk port in the Caspian Sea are examples of exporters' support in practice.

Third, regional issues of export development include issues of increasing the competitiveness of regional enterprises by clustering sectors of economy depending on the advantages of the region of the country, including localization or activation of the border exports. For example, business meetings and forums of border countries of Kazakhstan and Russia, Kazakhstan and Uzbekistan and other countries are held annually. On the other hand, specialized special economic zones have been created in each region, for example, in Shymkent in the direction of the textile industry.

At the same time, analysis shows that many state-level programs have different directions (8,9). As a result, this leads to underfinancing, or ineffective distribution of management tasks from central government bodies to regional ones. For illustrative purposes, according to the country's development program, the Ontustik Special Economic Zone is aimed at developing the region's textile industry, however, when analyzing subsidies in the agro-industrial complex (10), there is no article on subsidies that are aimed at supporting textile enterprises.

Fourth, institutional issues include the development of financial and technological institutions that could support exporters at various stages of their capacity growth. Such institutions, at present, include the following organizations:

A) JSC "Kazakh Export";
B) NEC “Atameken”;
C) SKSU and other educational institutions;
D) Kazakh Invest;
D) Kazakh Tourism;
F) "Damu" EDF;
E) Kazagro JSC;
G) Kazagrofinance JSC;
G) Others.

At the regional level, there are also more specialized organizations such as LLP Regional Investment Center "Ontustik", Socio-entrepreneurial corporations and various Industrial-innovative and special economic zones.

From the position of many observers and experts, there is a superficial work of many local institutions to fulfill the functions in the implementation of development tasks in different directions. To illustrate, the effects from the work of many government organizations are not indicative, if compared with those that are in the leading countries. For example, in the summer of 2018, farmers complained that they cannot get loan when needed urgently, especially for spring-field work from specialized institutions (11).

In fact, businesses need support from local institutions with fast, "long" and "cheap" loans or investments and with additional ongoing supportive services in place. On the other hand, it is necessary to understand more clearly how the development institutions fit into the development stages of exporters. On this issue, there are several solutions on how to optimize the development institutions.

Figure 1 shows an example of a solution that demonstrates the scheme of interaction of institutions at the regional level.

It can be seen from the table that it is important that financial institutions not only provide financial support, but also come up with a comprehensive approach for the development of export potential at the regional level.

On the other hand, Figure 1 shows the development stages of exporters and at what stages the role of different institutions is of primary importance. At the same time, in Figure 1 you can see how the institutions should interact with each other to support the development of exporters.

illustration not visible in this excerpt

Figure 1 Scheme of interaction of institutions for the development of regional export potential

Fifth, at a corporate or entrepreneurial level, there are more specific issues. Here, the questions relate to the level of human resources, the state of technology, the level of financial security, the research level for new products and innovations, and other business elements of company development.

It should be noted that much attention, under current conditions, is focused on large state-owned companies and central cities (12). They, in turn, because of a lack of understanding of the state of the regions, plan their work without going into the essence of the issues for effectively raising the level of the regions and their timely financing. For example, according to discussion in facebook.com, the allocated funds for subsidies, lending, support for exports, attracting investments remain on the bank deposits of development institutions and state-owned companies, which generate enough profit to support development institutions afloat without any effort and systemic thinking about development and economic recovery of the regions. In the long run, non-working cash in the deposits creates a lot of macroeconomic problems in the banking sector, which ultimately lead to shortage of their liquidity and lead to depreciation of the national currency.

Moreover, in multifactor approach, it is also necessary to understand the influence of various factors on other export factors, as well as exporters and their performance.

Preliminary we investigated 40 factors to find the relations, interactivity and their strengths to influence other factors.

Table 1 shows a list of factors and the influence of factors on the example of the development of meat exports.

Table 1 Factors influencing the development of export potential by the example of meat exports

illustration not visible in this excerpt

It can be seen from the table that for the development of meat exports a company should consider at least 40 factors for an integrated multi factor analysis to resolve the company’s export problem.

These factors influence each other and form a comprehensive picture of the development of the export of cattle meat.

Generally, the issues of this material provide an opportunity to look at the export problem in a comprehensive manner and at the same time create new directions for research and analysis of multifactor approaches to the development of the country's export potential. Especially for those factors with several unresolved issues and without measures of support which have not been taken from the development institutions and state bodies for many years. The classification will also allow the Government and its various bodies deeply consider the export development issues and take appropriate measures.

At the level of development institutions, the materials of the article allow the RIC “Ontustik” to expand its activities to support potential and existing exporters in the Turkestan region and Shymkent city. Thus, for example, from the multifactor analysis it is evident that, for example, the development of the feeding base is one of the important in the chain of export of production.

For new researchers and readers, this paper allows to look at the issues of economic development through a new prism of a multifactor approach, especially in regard to conducting joint studies and analyzation of the exporters to address existing barriers and new prospects for the development of export markets.

Literature

1) Bruce Katz and Emilia Istrate (2016), Boosting Exports, Delivering Jobs and Economic Growth, Extracted from: https://www.brookings.edu/wp-content/uploads/2016/06/0126_exports_katz_istrate.pdf

2) Wikipedia (2018), Foreign Trade of the Soviet Union, Extracted from: https://en.wikipedia.org/wiki/Foreign_trade_of_the_Soviet_Union

3) Oleksandr Shepotylo, 2009. "Export diversification across industries and space: do CIS countries diversify enough?", Kyiv School of Economics, Extracted from: https://ideas.repec.org/p/kse/dpaper/20.html

4) Wikepedia (2018), Propaganda in the Soviet Union, Extracted from: https://en.wikipedia.org/wiki/Propaganda_in_the_Soviet_Union

5) S.Elshibaev, Sh.Vakhidov (2011), Central Asia in 21 century: Russia, Kazakhstan and Turkestan, Extracted from: https://articlekz.com/article/7349

6) International Crisis Group (2002), Central Asia: Boarder Disputes and Conflict Potential, Extracted from: https://www.crisisgroup.org/europe-central-asia/central-asia/tajikistan/central-asia-border-disputes-and-conflict-potential

7) Uuriintuya Batsaikhana and Marek Dabrowski (2017), Central Asia – twenty five years after the breakup of the USSR, Russian Journal of Economics. Extracted from: https://www.sciencedirect.com/science/article/pii/S2405473917300429

8) Adilet.zan.kz (2013), Concept of formation of prospective national clusters of the Republic of Kazakhstan until 2020, Government Degree, Extracted from: http://adilet.zan.kz/rus/docs/P1300001092

9) Adilet.zan.kz (2017), Program “National Export Strategy of the Republic of Kazakhstan”, Government Degree, Extracted from: http://adilet.zan.kz/rus/docs/P1700000511

10) Adilet.zan.kz (2017), The rules of subsidizing the reimbursement of part of the costs incurred by the subject of the agro-industrial complex, with investments, Order of the Ministry, Extracted from: http://adilet.zan.kz/rus/docs/P1700000511

11) Nurbek Achilov (2018), Report after Business Training Seminars in the South-Kazakhstan region, Regional Investment Center

12) Adilet.zan.kz (2018), Inter-regional scheme of territorial development of the Shymkent agglomeration, Government Degree, Extracted from: http://adilet.zan.kz/rus/docs/P1800000074