Innovation ecosystem: the financing of innovations is less than 1% of gross domestic product | FinReview
28 August 2019

Innovation ecosystem: the financing of innovations is less than 1% of gross domestic product

Under the conditions of world economy globalization the creation and development of competitive innovation economy is one of the priority tasks for Kazakhstan. However, the current indicators of innovation development show the weak dynamics – over the last 10 years the share of costs for Research and Development in the gross domestic product structure has decreased from 0.3% to 0.17%, the number of innovation patents has decreased from 478 to 1 unit within three years. Nevertheless, the volume of innovative production continued to grow steadily – the specific gravity in relation to gross domestic product within five years increased from 1.46% to 1.98%.

After the impressive economic growth rates in the 2000-s (on average it has grown to 9.7%), the economy of Kazakhstan has slowed sharply since the beginning of the financial crisis due to the reduction of productivity growth. Its contribution to overall gross domestic product growth rate averaged 6 percentage points. However, during the period from 2010 to 2016 the average annual productivity growth rate decreased to less than 2%.

The gross domestic product growth rates have gradually stabilized by 2018 by the regulation of contribution of the oil sector to the development of the national economy. As a result, the economic growth according to the results of the first half of 2019 amounted to 4.1%. The dynamics is caused by the acceleration of development rates of industrial production, construction and services, as well as by the steady rates in agriculture and investments in fixed capital. The volume of gross domestic product manufactured is formed by 30.8% by the industrial production and by 17% by the mining sector.

Under the conditions of globalization the innovation policy is the important factor in economic diversification, which leads to the formation of competitive innovation economy. The government programs on support of domestic innovations have been established to improve the innovation environment.

Initially the targeted indicators of innovative development were reported in the Strategic Plan until 2010. Further, they were reported in the Strategy of Industrial and Innovative Development for 2003-2015, in the Program on Formation and Development of National Innovation System for 2005-2015, as well as in the State Program of Industrial and Innovative Development until 2019, in the “Digital Kazakhstan” program and in a number of other programs.

The development of innovation activity is directly related with the condition of fundamental and applied science and commercial demand of scientific and technical developments. In 2018 the financing of Research and Development (R & D) reached 99.7 billion tenges, at the same time fixed assets are formed by the private sector (73%). As shown by the world practice, with the increase of costs for Research and Development by 0.1% the gross domestic product growth in the long term can reach 1.2%. However, in Kazakhstan over the last ten years the specific gravity of expenses on Research and Development in relation to gross domestic product shows the downward dynamics, it decreased from 0.3% to 0.17%. For comparison, in the developed countries the indicator varies from 0.5% to 4.3%.

At the end of 2018 384 organizations, which carries out the Research and Development, with a total staff of 22.4 thousand employees were registered in Kazakhstan. The main number of employees consists of researchers (17.5 thousand people), including 1.7 thousand Doctors of Science, 4.4 thousand Candidates of Science and 0.9 thousand Doctors of PhD.

The innovative economy cannot develop effectively, unless the innovative product, which results from the intellectual activity, is protected by the patent. Over the last five years 2 680 innovative patents have been issued in Kazakhstan. The largest number of patents was in 2014 and 2015 – 1093 and 1096, respectively, but only 1 patent was issued in 2018.

As of 2018, 30.5 thousand organizations, which are engaged in innovations, have been registered in the country, among them 3.2 thousands own the innovations. The level of innovation activity of enterprises amounted to 10.6%. In the regional profile the innovation activity prevails in the East Kazakhstan region (15.5%), in the Karaganda region (14.7%) and in the city of Nur Sultan (14.7%).

Over the last five years the funding of product and process innovations in the country has increased by almost 2 times by the sharp increase of private funding in 2015. As a result, in 2018 the volume of investments reached 856.5 billion tenges, 86% of funds were invested by the private sector, 11% of funds were invested by the foreign enterprises and 3% of funds were invested by the state.

The volume of manufactured products in 2018 amounted to 1 179.2 billion tenges. The processing sector (930.1 billion tenges) and the mining industry (104.7 billion tenges) are dominated in the production structure. The share of innovative products in relation to gross domestic product was 1.98%.

The development of venture capital industry and direct investment is one of the priorities of public innovation policy and the prerequisite for improving of competitiveness of economic sectors. The financial institutions and innovative technology parks, such as: AIFC Fintech Hub, Astana Hub, Tech Garden, QazTech Ventures, which have already demonstrated the high activity results, have been established to successfully launch and implement startup projects in Kazakhstan.

Thus, on the basis of Astana Hub the work on creation of 244 projects is carried out, among them the mobile applications establishment, digital automation and e-commerce are the key ones. Since the beginning of 2018 the start-ups have jointly raised about 1 billion tenges. The autonomous cluster fund Tech Garden implements 232 projects. According to the results of 2018 year, with the acceleration program 69 projects were selected, by means of which 550 million tenges were earned during the year and 250 job vacancies were created. With the use of grant program QazTech Ventures during the period from 2014 to the first half of 2018 3.5 thousand job vacancies were created, the taxes in the amount of 11.5 billion tenges were paid, and the products in the amount of 194.3 billion tenges were manufactured.

Over the last three years the popularity of e-commerce has increased significantly – the volume of retail trade has reached 144.6 billion tenges (the growth is 84%), and the volume of wholesale trade has amounted to 114.9 billion tenges (the growth is 70%). At the same time the services in the amount of 136.1 billion tenges were implemented via the Internet.

According to the rating of the Global Competitiveness Index of the World Economic Forum in 2018 Kazakhstan took the 59th place (in 2017 it took the 59th place) among 140 countries of the world. At the same time, Kazakhstan is located on the 87th position (84 in 2017) by the level of innovation development.

In the rating of the Global Innovation Index carried out by the INSEAD International Business School, the Cornell University and the World Intellectual Property Organization, in 2019 Kazakhstan took the 79th place out of 129 countries of the world. At the same time, according to the index of resources and conditions for innovation, the country is located on the 64th place, and according to the achieved innovative results it is located on the 92nd place. The rating presents the most complete set of indicators of innovative development in different countries of the world, it is based on more than 30 sources. The key evaluation indicators are the conditions for innovation implementation and its implementation results.

According to the international agencies Kazakhstan has the necessary conditions for development of innovations, in particular the human resources, the perspective higher education institutions, the measures of state support, the availability of industrial facilities and others. In fact, however, Kazakhstan shows the weak results of innovative development.