Kazakhstan will lose around 25% of income if it does not increase financing of human capital | FinReview
7 October 2019

Kazakhstan will lose around 25% of income if it does not increase financing of human capital

In conditions of modernization of the world economy, human capital is the main driving force of the country’s socio-economic development and increasing its competitiveness. The degree of influence of human capital on economic growth is 55%. In Kazakhstan, at the current level of education and children’s health, labor productivity after they reach adulthood will be 75% of the initial potential.

The development of the leading countries of the world has led to the formation of a new economy – the economy of knowledge, innovation, global information systems, the latest technology and venture business. The new economy is based on human capital, which is the main driving force of the socio-economic development of modern society. However, most countries, caring for economic growth, prefer to invest in physical infrastructure, such as new roads, bridges, airports. Investments in human capital, defined as health, knowledge, skills, experience, skills, quality of life, are usually in little demand. However, neglecting them in the context of globalization of the world economy can drastically weaken the country’s competitiveness. According to the World Bank, the degree of influence of human capital on the country’s economic growth is about 55%.

Since 2017, the World Bank has been implementing a Human Capital Development Project aimed at assisting countries in creating a political platform to ensure investment priority in this sector. In 2018, Kazakhstan with a value of the human capital index of 0.75 (maximum value of 1) took 31 place in the ranking of 157 countries of the world. According to the index, the labor productivity of a newborn child when it reaches adulthood will be 75% of the potential level, which is possible with full education and good health. That is, the indicator reflects that in the long term, Kazakhstan may lose up to 25% of expected income.

The most important factor in the formation of human capital is education, whose role in ensuring sustainable socio-economic development, increasing competitiveness and strengthening its position in the world market and in the world economic community is growing steadily. Over the past 10 years, investments in the educational sector have been uneven – sharp growth and the subsequent decline in investment have been associated with ongoing reforms in the education system. The maximum funding peak occurred in 2017 – 257.2 billion tenge. In 2018, investments decreased by 25% and amounted to 205.3 billion tenge. This year, a decrease is also observed – over the past 7 months, investments reached 92.8 billion tenge, which is 11% lower than in 2018 (103.3 billion tenge for the same period in 2018).

The main reason for the decline in investment in the current year is a decrease in bank lending by 9 times and borrowed funds by 6 times. The funds were mainly generated from the local budget, in the amount of 34.6 billion tenge, the republican budget – 33.4 billion tenge and own funds of institutions – 24.5 billion tenge.

In 2018, 1.95 trillion tenge was allocated from the state budget for the development of the education sector, which amounted to 3.2% in relation to GDP. For comparison, in OECD countries this indicator is 3-4 times higher. As practice shows, an increase in spending on education by 1% leads to an increase in GDP by 0.35%, and an increase in the term of study for a year leads to an increase of 3-6%.

By modernizing the education system in order to meet international standards, Kazakhstan has significantly improved indicators of accessibility, quality of education, infrastructure, material and technical base and the use of new technologies. At the end of 2018, enrollment in higher education amounted to about 55%, an increase of 6 percentage points. in comparison with 2008.

According to the literacy index of the young population (from 15 to 24 years old) conducted by the UN Development Program, Kazakhstan took 15th place among 155 countries of the world. One of the factors that influenced the high position of Kazakhstan is to increase the accessibility and quality of education. If we compare the statistics of the number of students starting in 2000 with the birth rate, we can see that the number of students is at least 2 times higher than the birth rate. That is, there is a tendency to obtain additional specialties and postgraduate education. Obviously, this trend is an indicator of the growth of the status of educational institutions. Indeed, over the past 5 years, universities in Kazakhstan have significantly improved their positions in international rankings. According to the Quacquarelli Symonds (QS) rating, the highest positions among Kazakhstani universities are held by Al-Farabi Kazakh National University and the L.N. Gumilyov Eurasian National University – 207 and 418 places, respectively, from 1002 universities in the world. Among the developing countries of Europe and Central Asia, the list of TOP-100 best universities included 7 universities in Kazakhstan.